yC-NRLF 


THE  EVOLUTION  OF  PEOPLE'S 
BANKS 


BY 


DONMJ)  Si  TUCKER,  M.  A. 

Assistant  Pro/Lsar  Massach'usetiflmtitute  of  lechnology 


SUBMITTED  IN  PARTIAL  FULFILMENT  OF  THE  REQUIREMENTS 
FOR  THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 
IN  THE 

Faculty  of  Political  Science 
Columbia  University 


NEW  YORK 
1922 


I 


EXCHANGE 


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in  2007  with  funding  from 

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http://www.archive.org/details/evolutionofpeoplOOtuckrich 


THE  EVOLUTION  OF  PEOPLE'S 
BANKS 


BY 

DONALD  S.  TUCKER,  M.  A. 

AssUtant  Professor  Massachibseits  Institute  of  Technology 


V 


SUBMITTED  IN  PARTIAL  FULFILMENT  OF  THE  REQUIREMENTS 

.    FOR  THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 

IN  THE 

Faculty  of  Political  Science 
Columbia  University 


NEW  YORK 

1922 


ol7o07 


^  G-  X 


;Cxc>Aarige 


Copyright,  1922 

BY 

DONALD  S.  TUCKER 


3^ 


A.  J.  T. 


\ 


PREFACE 

The  success  of  various  European  systems  of  cooperative 
credit  has  aroused  wide  interest  not  only  in  this  country, 
but  also  in  every  civilized  nation.  Almost  every  important 
government  in  the  world  has  tried  at  some  time  to  secure 
for  its  citizens  the  benefits  of  these  unique  institutions. 
Finally  in  191 3  the  President  of  the  United  States  appointed 
a  commission  to  go  to  Europe  with  a  larger  group  assembled 
by  the  Southern  Commercial  Congress,  to  study,  among 
other  aspects  of  rural  life,  those  cooperative  institutions 
which  served  farmers.  The  testimony  presented  to  this 
commission  offered  an  unusual  abundance  of  source  material. 
But  the  speed  with  which  that  commission  was  compelled 
to  travel  over  Europe  seemed  to  leave  still  some  room  for 
investigations  of  a  humbler  and  more  detailed  kind,  while 
the  fact  that  this  commission  devoted  its  attention  primarily 
to  rural  credits  made  it  seem  desirable  to  gather  some  addi- 
tional material  with  respect  to  urban  institutions.  Thus  it 
happened  that  the  writer  of  the  following  pages  also  spent 
some  months  abroad  in  191 3  trying  to  gather  material  for 
a  description  of  these  institutions. 

Before  the  results  of  this  investigation  were  ready  for 
presentation  to  the  public,  there  was  published  in  this  country 
a  remarkable  book  on  Rural  Credits  by  Myron  T.  Herrick,. 
and  R.  Ingalls.  Substantially  half  of  that  work  was  de- 
voted to  a  description  of  Cooperative  Credit.  This  des- 
cription included  urban  as  well  as  rural  institutions.  The 
completeness  and  excellence  of  the  description  which  Ambas- 
sador Herrick  thus  presented,  made  further  work  along 
5]  5 


5  PREFACE  [6 

that  line  quite  useless.  But  the  very  excellence  of  his  work 
brought  out  one  defect  which  is  necessarily  inherent  in  the 
purely  descriptive  method; — it  is  not  possible  in  that  way 
to  bring  out  so  clearly  the  conditions  under  which  coopera- 
tive institutions  have  succeeded  or  failed.  The  effect  which 
a  changing  environment  has  on  such  institutions  and  the 
changes  within  the  institutions  themselves  which  have  been 
made  to  secure  adaptation  to  the  changed  conditions,  can  be 
brought  out  clearly  only  in  an  historical  account.  It  is  for 
this  reason,  rather  than  because  of  any  desire  to  compete  in 
its  own  field  with  a  classic  investigation,  that  this  study  has 
been  attempted. 

In  presenting  this  monograph  to  the  public  it  is  necessary 
first  to  thank  three  members  of  the  Department  of  Econ- 
omics of  Columbia  University, — Professors  Seligman, 
Seager  and  Simkhovitch,  for  their  kindly  interest.  To  his 
colleague  and  superior  officer.  Professor  Davis  R.  Dewey 
of  the  Massachusetts  Institute  of  Technology,  the  writer 
gratefully  acknowledges  a  similar  debt.  To  two  officials 
of  the  audit-leagues  of  the  Imperial  Federation,  Dr.  Sunn- 
ing and  Dr.  Lindekugel,  the  writer  is  indebted  for  much  in- 
formation. To  several  professors  at  the  University  of 
Halle  a.  S.  the  writer  of  these  pages  is  also  much  indebted. 
To  his  host,  Professor  Gutzeit,  the  writer  owes  many  op- 
portunities to  come  in  contact  with  people  who  could  give 
information  and  advice.  To  Professor  Conrad  the  writer 
is  indebted  for  much  kindly  interest.  To  the  course  given 
in  the  University  of  Halle  by  Dr.  Hans  Cruger,  the  Counsel 
of  the  Universal  Federation,  the  writer  is  indebted  for  much 
of  his  present  view-point  with  respect  to  people's  banks ;  and 
to  Dr.  Cruger  personally  the  writer  is  indebted  for  his  most 
generous  offer  of  the  translation  privileges  of  Dr.  Criiger's 
own  excellent  treatise.  It  has  always  been  a  matter  of  re- 
gret to  the  writer  that  he  was  not  able  to  avail  himself  of 


y]  PREFACE  7 

that  offer.  But  most  of  all  the  writer  is  indebted  to  Dr. 
Rabe,  the  manager  of  the  Imperial  Federation's  audit-league 
for  the  province  of  Saxony.  To  the  latter's  course  on  rural 
cooperation,  to  the  opportunities  which  he  afforded  to  secure 
first  hand  contact  with  various  institutions,  and  to  his  kindly 
interest  is  due  no  inconsiderable  portion  of  the  writer's 
views  with  respect  to  rural  cooperation. 

Donald  S.  Tucker. 
The  Massachusetts  Institute  of  Technology, 
Cambruxje,  Mass,,  March  14,  1922. 


CONTENTS 


FACX 

CHAPTER  I 
The  Foundation  Stones ii 

CHAPTER  II 
Victor  Aime  Hubcr 20 

CHAPTER  III 
Schulze-Delitzsch:  His  Period  of  Preparation 29 

CHAPTER  IV 
Schulze-Delitzsch:  His  Project  of  1852 43 

CHAPTER  V 
Schulze-Delitzsch:  His  Years  of  Leadership S6 

CHAPTER  VI 
The  Schulze-Delitzsch  Movement  and  Counsel  Schenck 95 

CHAPTER  VII 
State  Aid  and  the  Hauptnerband 113 

CHAPTER  VIII 
The  Schulze-Delitzsch  Movement  Under  Counsel  Criiger    ....    134 

CHAPTER  IX 
The  Universal  Federation 152 

CHAPTER  X 
A  People's  Bank  in  Operation 166 

CHAPTER  XI 

The  Structure  of  a  People's  Bank 180 

9]  9 


10  CONTENTS  [lO 

PAGE 

CHAPTER  XII 
Luzzatti  and  his  Followers 211 

CHAPTER  XIII 
The  People's  Bank  in  Many  Lands 227 

CHAPTER  XIV 
The  Essence  of  Cooperation 242 

CHAPTER  XV 
The  Field  for  Cooperative  Credit 253 


CHAPTER  I 
The  Foundation  Stones 

There  are  at  present  three  distinct  types  of  cooperative 
banks  or  cooperative  credit  institutions.  These  are  (i)  the 
cooperative  investors'  association,  of  which  the  most  con- 
spicuous example  is  the  American  savings  and  building-loan 
association;  (2)  the  people's  bank  whose  success  abroad 
has  aroused  an  ever  increasing  amount  of  interest  in  this 
country;  and  (3)  the  cooperative  borrower's  association, 
which  is  best  exemplified  by  the  Raiffeisen  or  village  bank. 
This  monograph  is  confined  to  a  study  of  the  development 
of  the  work  and  of  the  structure  of  the  second  of  these  three 
institutions,  the  group  of  organizations  which  on  the  con- 
tinent of  Europe  are  often  called  Schulze-Delitzsch  syndi- 
cates or  Luzzatti  banks,  but  which  in  English-speaking  coun- 
tries are  commonly  called  simply  people's  banks. 

The  cooperative  savings  and  building-loan  associations 
originated  in  England  at  about  the  opening  of  the  nineteenth 
century.  By  the  middle  of  that  century  they  had  risen  to 
great  popularity  within  England  and  had  spread  to  the  con- 
tinent of  Europe,  as  well  as  to  the  United  States.  In  the 
latter  country  there  was  a  progressive  improvement  in  their 
structure  and  in  their  efficiency  as  well  as  a  great  growth 
in  numbers  and  wealth,  but  there  was  no  further  develop- 
ment ; — no  new  form  arose  from  the  cooperative  investors' 
association.     In  Europe  things  followed  a  different  course. 

The  force  back  of  this  European  development  was  the 
Industrial  Revolution  and  the  whole  series  of  reform  move- 
ments, socialistic  and  otherwise,  which  followed  on  the  heels 
11]  II 


12  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [12 

of  that  Revolution.  The  introduction  of  machinery  oc- 
curred first  within  England.  It  was,  therefore,  within  Eng- 
land that  the  first  steps  toward  reform  were  taken.  These 
first  efforts  were  devoted,  not  at  all  to  the  development  of  a 
new  and  more  efficient  form  of  business  organization,  but 
solely  toward  moral  and  economic  reform. 

The  misery  and  degradation  of  the  English  laborer  during 
the  first  half  of  the  last  century  is  so  familiar  that  a  des- 
cription of  the  horrors  of  his  life  need  not  be  repeated  here. 
It  was  an  effort  to  alleviate  these  horrors  that  brought  for- 
ward the  man  who  was  destined  to  become  both  the  first 
modern  socialist  and  the  first  important  contributor  to- 
ward the  development  of  the  cooperative  syndicate. 

Robert  Owen  was  born  in  a  village  of  North  Wales  in 
1771.^  His  father  was  a  saddler  who  could  afford  but  little 
education  for  his  son.  Robert's  business  career  began  at 
the  age  of  ten.  For  a  while  this  career  was  marked  by 
many  changes  of  occupation.  At  one  time  Owen  was  the 
partner  of  Robert  Fulton,  the  inventor  of  the  steamboat.* 
But  throughout  his  business  life  and  especially  after  he 
passed  the  age  of  nineteen,  he  was  brilliantly  successful. 
Among  other  operations  he  and  his  partners  purchased  a 
mill  in  New  Lanark,  where  he  himself  settled  in  1800  as 
resident  manager.*  Here  he  began  to  interest  himself  in 
projects  for  social  reform.  In  this  too  he  was  strikingly 
successful.  Commercially  his  New  Lanark  mills  were  a 
success,  but  his  partners  felt  that  they  would  be  an  even 
greater  success  if  it  were  not  for  the  expense  of  the  social 
betterment  projects  for  which  the  firm  was  paying.  The 
partnership  was  therefore  dissolved  and  Owen  secured  new 
partners,  among  them  William  Allen  and  Jeremy  Bentham. 

1  Jones,  Lloyd,  Life,  Times  and  Labors  of  Robert  Owen. 
*Owen,  Robert,  Life  of  Robert  Owen,  vol.  ii,  p.  6g. 
^  Kirkup,  History  of  Socialism,  p.  60  et  seq. 


13]  THE  FOUNDATION  STONES  13 

These  new  partners  agreed  to  content  themselves  with  an 
annual  dividend  of  five  per  cent/ 

This  new  method  of  paying  the  proprietors  is  noteworthy. 
Owen's  plan  was  "  to  form  a  partnership  of  thirteen  shares 
....  and  that  over  five  per  cent  for  our  capital  and  risk,  the 
surplus  gains  shall  be  freely  expended  for  the  education  of 
the  children  and  the  improvement  of  the  workpeople  at  New 
Lanark  and  for  the  general  improvement  of  the  conditions 
of  the  persons  employed  in  manufactures."  ^ 

Owen  devised  here  a  scheme  which  has  been  the  basis 
of  many  modern  cooperative  programs;  namely,  a  definite 
return  for  the  capital  involved  with  the  stipulation  that  all 
surplus  above  this  fixed  amount,  that  is,  all  the  profit  or 
residue  whose  existence  depends  on  the  fortunes  of  the 
business,  should  go  for  other  purposes.  This  residual  share 
in  New  Lanark  remained  the  property  of  the  firm.  The 
only  difference  was  that  it  was  administered  as  a  trust  fund. 

The  next  step  was  actually  to  transfer  the  ownership  of 
this  residuum.  But  that  step  was  not  made  until  consider- 
ably later.  In  the  meantime  Owen's  ideas,  both  through 
his  own  efforts  and  through  the  activities  of  the  Christian 
Socialists,  were  spread  far  and  wide.  i 

In  addition,  Owen  was  the  first  great  prophet  of  coopera- 
tion. But  cooperation,  as  he  meant  it,  was  not  a  definite 
scheme  to  eliminate  the  capitalistic  employer.  It  was  rather 
the  general  idea  of  association,  of  communal  work,  a  kind 
of  Utopian  socialism.  It  was  exemplified  by  the  communi- 
ties at  Orbiston  and  New  Harmony.  These  experiments 
failed,  but  the  discussion  they  stirred  up  grew.  Thus  by 
1830  the  movement  ^  contained  over  five  hundred  associa- 

'  ^  Owen,  Autobiography,  vol.  ii,  p.  95. 

2  'Cooperation,  even  the  idea  of  "  philanthropy  plus  5%  "  had  received 
some  previous  experimentation  at  the  hands  of  Count  (Rumford.  Cf. 
Holyoake,  Self  Help  100  Years  Ago. 


14  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [14 

tions  and  numerous  newspapers  were  devoted  to  the 
cause.  ^  i 

In  1830  a  cooperative  congress  was  held  in  Manchester. 
Six  subsequent  ones  were  held,  but  within  a  brief  period 
they  were  replaced  by  the  first  socialist  congress,  the  Asso- 
ciation of  All  Classes  of  All  Nations.^  Cooperative  stores 
had  existed  ere  this  as  philanthropic  institutions.^  Now  the 
idea  was  revived.  In  1837  a  store  was  opened  in  John  St., 
London.* 

The  first  really  successful  cooperative  store  was  one  or- 
ganized by  a  group  of  workers  in  Rochdale  in  1844.  Their 
plan,  as  worked  out  by  Charles  Howarth,*  was  that  members 
on  joining  should  each  subscribe  for  one  £5  share.  This 
was  to  be  paid  for  in  small  instalments.  On  this  share- 
capital  interest  at  the  rate  of  5%'  was  to  be  paid,  any  profits 
above  this  amount  were  to  be  distributed  in  proportion,  not 
to  stock,  but  to  purchases.  This  scheme  differed  from 
Owen's  plan  in  that  the  title  to  the  profits  actually  passed  to 
the  beneficiaries.  In  practice  the  society  encouraged  its 
members  not  to  withdraw  their  dividends,  but  to  reinvest 
in  the  capital  stock  of  the  society.  Prices  were  held  up  to 
the  full  rates  current  in  the  locality,  so  that  there  might  be 
some  sort  of  a  margin  for  unexpected  expenses  or  losses,  as 
well  as  a  surplus  to  pay  these  dividends. 

Credit  for  this  new  idea,  that  of  assigning  profits,  and 
incidentally  losses,  to  some  one  other  than  the  capitalist, 
has  been  claimed  for  various  men.  A  little  known  society 
near  Huddersfield  had  run  a  store  on  this  plan  since  1827I 
but  no  one  seems  to  have  heard  of  its  work  until  1870.* 

^  Seligman,  Owen  and  the  Christian  Socialists,  p.  214. 
2  Holyoake,  History  of  Cooperation,  vol.  i,  p.  191. 
®  Holyoake,  Self  Help  One  Hundred  Years  Ago. 

*  Holyoake,  History  of  Cooperation,  p.  297. 
« Ihid.,  vol.  ii,  p.  35. 

*  Ihid.,  vol.  ii,  p.  2J^. 


1 2  ]  THE  FO  UN  DA  TION  STONES  1 5 

Credit  has  also  been  claimed  for  a  society  of  bakers  in 
Glasgow.  But  certainly  the  first  experiment  of  which  the 
world  heard  and  whose  results  were  available  for  use  was 
that  of  William  Howarth  and  his  associates,  the  Rochdale 
Pioneers. 

This  Rochdale  business  grew  and  became  diversified.  In 
191 2  the  wholesale  department  which  the  stores  on  the  Roch- 
dale plan  had  organized  in  order  to  supply  themselves  and 
other  similar  stores,  had  392,934  shares  of  stock  of  £5  apiece 
outstanding  and  did  a  business  of  approximately  $150,000,- 
000.00  ^  within  the  year. 

After  the  appearance  of  the  cooperative  store,  the  history 
of  the  development  of  cooperative  banking  shifts  from  Eng- 
land back  to  France,  which  had  already  served  as  the  birth- 
place of  the  friendly  society,  the  first  of  all  the  modern 
organizations  of  cooperative  finance.  The  reign  of  Louis 
Phillipe,  king  of  the  French  from  1830  to  1848,  was  marked 
by  a  continuously  increasing  discontent  on  the  part  of  the 
poorer  classes  and  a  growing  discussion  of  comprehensive 
schemes  of  social  reform.  Among  those  who  contributed 
most  to  this  discussion  were  Buchez,  Proudhon  and  Louis 
Blanc.  j 

Buchez  (1796- 1 865)  started  his  career  with  a  bitter 
hatred  of  Christianity,  but  later  he  became  a  convert  of 
the  Catholic  Church  and  worked  with  fervent  zeal  to  im- 
prove the  condition  of  the  working  classes.  He  published 
his  views  in  various  forms.  One  of  these  publications 
bears  the  ambitious  title.  Essay  at  a  Complete  Treatise  on 
Philosophy  from  the  Point  of  View  of  Catholicism  and 
Progress.  But  Buchez  also  did  some  practical  organizing 
work.  In  1832  he  founded  an  association  for  cabinet- 
makers and  in  1834  a  similar  one  for  goldsmiths.     In  these 

1  Redfern,  History  of  the  C.  W.  S.,  p.  41S. 


l6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [i6 

associations  he  developed  one  institution  which  was  destined 
to  play  a  great  role  in  cooperative  history;  namely,  the  idea 
of  an  undistributable  surplus,  an  inalienable  fund  to  which 
a  certain  portion  of  the  earnings  must  be  credited  each  year.^ 

Pierre  Joseph  Proudhon  (1809- 1865)  was  one  of  the 
founders  of  anarchism.  In  a  history  of  nineteenth  century 
France,  his  figure  would  be  a  more  conspicuous  one  than  that 
of  Buchez.  But  within  the  narrower  field  of  cooperation, 
Proudhon  is  important  for  only  one  reason.  In  1848  he 
launched  a  grandiloquent  scheme  for  a  "  People's  Bank  *' 
with  a  structure  that  was  by  no  means  cooperative.  His 
bank  collapsed  within  a  few  months  and  by  its  collapse  did 
much  to  prevent  the  development  within  France  of  any 
genuine  cooperative  banking  movement.* 

Louis  Blanc  (1811-1882)  holds  an  even  larger  place  in 
the  history  of  the  nineteenth  century.  He  was  perhaps  the 
most  conspicuous  figure  in  the  history  of  French  Socialism. 
He  did  much  to  popularize  the  idea  of  cooperative  produc- 
tion. As  a  result  of  his  agitation,  the  government  of  France 
appropriated  nearly  $600,000.00  in  1848  to  supply  capital 
for  "  national  workshops."  But  the  administration  of  this 
fund  was  put  in  the  hands  of  Louis  Blanc's  political  oppon- 
ents, men  who  seemed  eager  to  see  to  it  that  his  plans  did 
not  succeed.  In  spite  of  the  manner  in  which  this  fund 
was  administered,  a  few  of  the  state-aided  cooperative  socie- 
ties did  moderately  well.*  However,  the  failure  of  the 
large  majority  of  the  new  cooperative  factories  did  more 
than  anything  else  to  make  improbable  in  France  any 
prompt  development  of  real  cooperation. 

^M.  Fassbender,  F.  W.  Raiffeiscn  in  seinem  Leben,  Denken  und 
IVirken  (Berlin,  1902,  p.  85). 

^Herrick  and  Ingalls,  Rural  Credits,  p.  321  and  Kirkup,  History  of 
Socialism,  p.  51  et  seq. 

*  Kirkup,  History  of  Socialism,  p.  43  et  seq. 


17]  THE  FOUNDATION  STONES  17 

In  Belgium  this  same  year  of  general  unrest  (1848) 
brought  about  the  formation  of  the  first  true  credit  union. 
M.  Francois  Haeck  induced  a  number  of  men  to  join  to- 
gether, each  subscribing  for  one  share  of  the  bank  they 
were  thus  founding.  On  this  share  they  paid  in  a  small 
proportion  of  its  par  value.  They  thus  became  entitled  to 
have  the  Union  endorse  or  "  accept "  their  paper  up  to  an 
amount  equal  to  the  par  value  of  their  share.  This  paper 
was  then  sold  to  investors  who  looked  to  the  Union  for  pay- 
ment. The  society  was  very  successful,  so  successful  in 
fact  that  rich  men  were  glad  to  join.  Then,  as  an  organi- 
zation of  rich  men,  it  ceased  to  command  the  attention  of 
social  reformers  and  of  those  who  might  have  been  benefited 
by  imitation.  Organizations  of  this  type  naturally  can 
succeed  only  when  the  members  are  chosen  with  very  great 
care.  Perhaps  this  necessity  for  such  an  exclusive  member- 
ship is  one  reason  why  the  Belgian  scheme  did  not  spread 
more  rapidly.  At  any  rate,  the  Belgians  soon  lost  to  the 
Germans  the  honor  of  being  the  practical  founders  of 
modern  cooperative  banking.^ 

Perhaps  it  was  inevitable  that  Germany  should  become 
the  cradle  of  the  cooperative  banking  movement.  Certainly 
there  were  many  favoring  circumstances.  To  begin  with, 
Germany  had  a  large  population.  Cooperation  could  spread 
within  it  to  a  very  considerable  extent  without  encountering 
the  obstacles  of  diversified  speech  and  ideals.  Next  it  still 
retained  to  a  very  considerable  degree  its  feudal  character. 
Even  in  the  cities  class  lines  were  more  distinct  than  in 
most  nations  of  equal  economic  development.  Men  thought 
of  themselves  far  more  easily  as  members  of  a  certain 
social  class.  There  was  little  change  of  residence.  Men 
belonged  in  a  definite  place. 

1  Wolff,  H.  W.  People's  Banks,  p.  286  et  seq. 


l8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [ig 

In  the  rural  districts  the  German  farmers  are  not  scattered 
out  over  the  land  as  they  are  in  America  and  in  some  parts 
of  western  Europe,  but  are  concentrated  in  villages  of  a 
hundred  or  more  inhabitants.  These  peasants  were  quite 
accustomed  to  look  upon  the  village  as  the  normal  centre 
of  their  lives.  Not  only  did  Germans  know  to  what  social 
class  they  belonged,  but  outside  of  the  great  cities  each  Ger- 
man had  also  a  definite  place  within  a  local  group. 

In  addition  to  all  this  favorable  background,  there  were 
in  existence  in  north  Germany  certain  definite  institutions 
whose  operation  had  to  a  large  extent  familiarized  the  popu- 
lation with  some  forms  of  cooperative  organization.  The 
most  important  of  these  of  course  was  the  joint-stock  cor- 
poration. But  there  were  also  charitable  loan  societies,^  and 
some  institutions  similar  to  the  English  friendly  societies 
and  savings  banks  with  the  difference  that  the  insurance 
feature  was  perhaps  more  prominent  in  the  German  societies.^ 
The  municipal  savings  banks  also  deserve  special  men- 
tion here  because,  as  they  spread  to  the  smaller  towns,  it 
was  easier  to  observe  their  role  as  municipal  borrowing 
agencies.  The  fact  that  they  were  media  for  investment 
open  to  all  who  wished  to  save  must  have  been  supplemented 
by  a  realization,  at  least  in  the  smaller  towns,  that  the  bank's 
acceptance  of  deposits  made  all  taxpayers  jointly  liable. 
There  were  also  copies  of  the  English  savings  and  building- 
loan  associations. 

Finally,  and  most  important  of  all,  the  gilds  of  Germany 
had  survived  more  completely  than  those  of  any  other 
country.  Not  until  the  reforms  of  Stein  and  Hardenberg 
(1808-1811)  was  their  monopoly  position  disturbed;  and 
even  after  these  reforms  the  gilds  lived  on  as  voluntary 

J  M.  Fassbender,  F.  W.  Raiffeisen,  p.  72, 
2  Ibid.,  p.  70. 


19]  THE  FOUNDATION  STONES  ig 

associations.  So  strong  were  they  that  an  effort  to  regulate 
them  in  1845  precipitated  a  congress  of  hand- workers  in 
1848  and  was  one  of  the  many  causes  of  the  revolution  of 
that  year/ 

^  F.  A.  Ogg,  Economic  Development  of  Modern  Europe  (New  York, 
1917)  pp.  218-219. 


CHAPTER  II 

Victor  Aime  Huber 

Though  Owen  must  be  regarded  as  the  first  apostle  of 
the  modern  cooperative  movement,  the  first  apostle  of 
cooperation  in  borrowing  and  finance  was  Victor  Aime 
Huber.  Huber  was  born  in  Tubingen,  March  lo,  1800. 
When  six  years  old  he  was  sent  to  von  Fellenberg's  school 
in  Switzerland,  where  he  remained  until  he  was  sixteen. 
During  this  period  Robert  Owen  visited  the  school  to  dis- 
cuss cooperation.  At  the  age  of  sixteen  Huber  entered  the 
University  of  Gottingen  as  a  student  of  medicine.  He  was 
not,  however,  particularly  interested  in  that  subject  and 
spent  a  considerable  amount  of  time  on  various  other  sub- 
jects, especially  modern  languages  and  literature.  He  was 
granted  his  degree  in  1820  and  then  went  to  Paris  to  con- 
tinue his  work  as  a  medical  student.  He  was  still  but 
little  interested  in  this  subject  and  spent  the  next  few  years 
(until  1823)  travelling  in  Spain,  Portugal,  Scotland  and 
England.^  However  educational  these  travels  may  have 
been,  they  did  not  increase  his  knowledge  of  medicine. 
Thus  he  did  very  poorly  when  he  tried  to  take  the  state 
examination  in  Munich  in  1824.  This  ended  his  connec- 
tion with  medicine.  The  next  few  years  he  spent  again  in 
travel  in  England,  France,  Spain  and  Italy.  He  did  some 
work  for  a  publishing  house  and  then  for  five  years  taught 
in  the  Bremen  school  of  commerce.     In  1832  he  received  a 

1  Meitzel,  article  011  Huber  in  Handworterbuch  der  Staatswissen- 
schaften  (Jena,  1910).  vol.  v,  p.  487. 

20  [20 


2 1  ]  VICTOR  AIM£  HUBER  2 1 

call  from  the  University  of  Rostock  as  professor  of  philo- 
logy and  the  history  of  literature.^  In  1836  he  went  to  the 
University  of  Marburg  and  in  1843  to  Berlin  in  response 
to  a  call  which  was  wrung  from  the  University  senate  by  the 
Prussian  King,  Frederick  William  IV.  But  his  stay  at  this 
university  was  far  from  happy,  so  he  retired  in  185 1.  In 
the  following  year  he  resigned  from  government  service 
as  well.^  Nearly  twenty  years  later  he  died  in  Wernigerode 
in  the  Harz  Mountains,  July  19th,  1869. 

At  the  time  of  his  death  he  was  known  largely  because 
he  had  published  two  periodicals:  the  M ecklenhurgische 
Blatter,  a  fortnightly  magazine  issued  during  his  residence 
in  Rostock  and  the  Jamts  which  appeared  from  1845  ^^ 
1848,  while  he  was  living  in  Berlin. 

His  religious  life  was  a  curious  mixture,  corresponding 
roughly  to  his  changes  of  environment.  His  youth  was 
singularly  cosmopolitan  and  during  this  period  he  joined  no 
church,  and  was  on  the  whole  quite  liberal  in  his  religious 
views.  Though  he  had  inclined  toward  Catholicism  in  his 
youth,  he  was  certainly  not  much  interested  in  religion. 
Then  he  settled  down  in  the  prosperous  commercial  city 
of  Bremen  as  a  teacher.  Furthermore,  he  became  engaged 
while  there.  He  thereupon  executed  a  right-about-face, 
and  in  his  twenty-ninth  year  joined  the  Reformed  Church  to 
which  his  fiancee  already  belonged.  He  even  became 
a  zealous  attendant.  Finally  it  must  be  admitted  that  in  his 
later  years  he  again  evinced  considerable  friendliness  toward 
Catholicism.  But  during  the  active  portion  of  his  life  and 
during  the  period  of  his  prominence  he  was  an  ardent  sup- 
porter of  the  Lutheran  Church.  I 

1  Dr.  Martin  Fassbender,  F.  W.  Raiffeisen  in  seinem  Leben,  Denken 
und  Wirken  (Paul  Parey,  Berlin,  1902),  passim. 
-  Meitzel,  op.  cit. 


22  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [22 

In  his  political  life  too  he  showed  a  similar  right-about- 
face.  Though  at  first  a  liberal,  his  change  from  the  school 
of  commerce  into  a  university  chair  of  literature  brought 
with  it  a  change  of  view-point,  and  in  his  forty-first  year  he 
published  a  pamphlet  whose  title  in  part  was  On  .... 
the  Necessity  of  a  Conservative  Party  in  Germany.  This 
first  political  effort  preceded  by  only  two  years  the  royal 
effort  to  secure  for  him  a  position  in  the  University  of 
Berlin.  From  this  time  until  his  death  much  of  his  life 
was  devoted  to  political  activity.  His  ultimate  goal  through- 
out this  political  work  was  the  creation  of  a  "  Christian 
communal  life  based  upon  economic  reforms  with  the  help 
of  associated  activity  carried  on  in  a  spirit  of  Christian 
love."  The  immediate  means  by  w^hich  he  thought  the  goal 
could  be  obtained  was  cooperation. 

Though  his  motives  were  religious,  his  interests  were 
primarily  in  the  present  life.  He  had  been  a  student  of 
economic  history,  and  as  such  appreciated  the  changes  in 
the  institution  of  property.  As  early  as  1845,  therefore,  we 
find  him  discussing  the  possibility  of  organizing  the  masses 
on  the  basis  of  a  common  property  to  be  created.  In  the 
twenty  years  following  he  worked  out  his  ideas  more  clearly. 
Thus  in  1864  we  have  from  him  the  following  much  clearer 
confession  of   faith: —  ) 

We  are  not  so  simple-minded,  so  ignorant  or  so  prejudiced 
as  to  say  that  cooperation  alone  can  attain  to  the  solution  of  the 
social  problem.  But  we  certainly  do  see  in  it  a  prime  factor 
in  that  solution.  .  .  .  We  are  of  the  opinion,  that  under  all 
given  conditions,  where  the  cooperative  principle  is  applicable, 
it  can  produce  the  best  results  possible  under  the  circumstances. 
We  have  not  been  dragged  along  in  the  trail  of  any  theory  about 
the  significance  of  cooperation ;  but  have  been  influenced  in  part 
by  seeing  the  condition  of  the  working  classes  in  many  national, 
fKjIitical  and  social  conditions  and  in  part  by  practical  experi- 


23]  VICTOR  AIM£  HUBER  2^ 

ence  in  the  operation  of  this  new  strength,  at  least  in  this 
particular  respect.  We  came  upon  this  right  track  first  in  one 
of  our  many  visits  to  England.^ 

Ruber's  first  interest  in  cooperation  seems  to  have  been 
aroused  as  a  reaction  from  his  horror  at  the  truck  system, 
that  is,  the  system  of  paying  workers  not  in  cash  but  in 
orders  on  the  company  store,  or  in  commodities  at  prices  set 
by  the  company.  Naturally,  then,  his  first  interest  was  in 
cooperative  buying,  that  is,  in  cooperative  stores. 

Among  these  cooperative  stores,  he  found  three  systems  of 
disposing  of  the  profits  which  arose  from  the  conduct  of 
the  business.  These  were  (i)  dividing  them  among  the 
owners  of  stock  in  the  business  as  in  an  ordinary  commercial 
enterprise;  (2)  devoting  the  profits  to  some  common  pur- 
pose; and  (3)  dividing  the  profits  among  members,  in  ac- 
cordance with  their  purchases  (the  Rochdale  plan). 

The  foundation  of  the  Rochdale  Pioneers  (1844)  coin- 
cides with  the  beginning  of  Ruber's  propaganda  for  coopera- 
tion. With  the  work  of  these  Pioneers  we  are  already  suf- 
ficiently familiar.  Suffice  it  to  say  that  not  only  was  Ruber 
familiar  with  their  work,  but  his  chief  significance  lies  in 
the  fact  that  he  was  the  exponent  in  Germany  of  three  re- 
lated English  movements:  (i)  the  Rochdale  cooperative, 
(2)  Christian  Socialism  and  (3)  the  cooperative  savings 
and  loan  associations,  or  the  freehold  land  and  building 
societies.  In  addition  to  this  Ruber  was  the  representative 
in  Germany  of  the  French  movement  for  cooperative  pro- 
duction. Re  was  the  evangelist  in  Germany  of  the  gospel 
of  cooperation  in  all  its  branches. 

Ruber's  interest  in  this  French  movement  had  been 
aroused  especially  by  the  work  of  Buchez  described  above. 

^  J.  C.  Glaser's  Jahrbiicher  der  Gesellschafts  ufvd  Staatswissenschaften, 
vol.  i,  no.  I,  reprinted  by  Fassbender. 


24  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [24 

Toward  Buchez  and  toward  the  whole  French  movement  he 
looked  ever  with  hope.  Although  they  were  able  to  accom- 
plish so  little,  Huber  felt  that  these  French  idealists  were  the 
harbingers  of  a  great  movement.  Huber' s  own  importance 
in  the  history  of  the  cooperative  movement  lies  in  the  fact 
that  he  possessed  such  a  vision.  He  was  the  interpreter  to 
Germany  of  the  progress  in  cooperation  which  had  taken 
place  elsewhere.  His  publications,  philological,  historical, 
economic,  religious  and  political  are  almost  too  numerous 
to  be  even  listed  here,^  but  the  following  are  worthy  of  men- 
tion : — ■ 

Concerning  Domestic  Colonies  (Berlin,  1846). 
Self    Help    Among    the    Working    Classes    Through 
Economic     Unions     and     Colonisation    at     Home 

(1848). 

Associations    With    Especial    Reference    to    England 

(1851). 

Cooperative  Organisations  Among  the  Wage-Earners 
in  England  (1852). 

This  third  publication  seems  to  have  been  of  special  in- 
terest as  it  was  cited  by  Schulze-Delitzsch,  the  most  distin- 
guished of  the  German  cooperative  organizers,  in  one  of 
his  own  earlier  books.'  Other  publications  include 
Travels  in  Belgium,  France  and  England  (1855)  and 
Cooperative  Organisations  among  the  Workers  in  Eng- 
land,  France  and  Germany.  ( i860) 

One  series  is  perhaps  particularly  worthy  of  note.  It  is 
a  group  of  eight  essays  bearing  the  general  title,  Lectures 
on  the  Solution  of  the  Social  Problem.     This  group  in- 

1  A  list  of  these  may  be  found  in  Handworterbuch  der  Staatswissen- 
schafien,  vol.  v,  pp.  4S7  and  488. 

2  A.  Bernstein,  Schulze-Delitzsch,  sein  Leben  und  Wirken  (Bading, 
Berlin). 


25]  VICTOR  AIM^  HUBER  25 

eluded  essays  on  '^  What  a  Loan  Union  May  Accomplish," 
"  The  Cooperative  Store  in  Zurich  ",  "  Credit  Unions  and 
Loan  Unions "  and  "  German  Cooperative  Associations 
in  the  Autumn  of  1861." 

In  addition  to  spreading  the  news  as  to  what  had  been 
done  elsewhere,  Huber  did  a  lot  of  excellent  thinking  of  his 
own  on  this  subject.  Never  a  great  organizer,  nor  active 
in  the  management  of  unions,  he  was,  perhaps  because  of 
this  very  isolation,  an  exceptionally  thoughtful  critic  of  the 
movement,  and  quite  keen  in  his  analysis  of  what  coopera- 
tion could  and  could  not  do. 

In  the  first  place  Ruber's  interest  in  the  whole  subject 
was  primarily  ethical.  He  believed  that  the  evil  in  this 
world  was  due  primarily  to  defects  of  character.  There- 
fore the  church  was  right  in  striving  to  reach  the  spiritual 
springs  of  action  directly  by  inspiration.  But  character 
is  affected  not  only  by  such  inspiration  but  also  by  the  en- 
vironment under  which  it  is  formed.  Modesty  for  example 
is  impossible  where  congestion  is  great.  Character,  said 
Huber,  could  be  injured  by  having  either  too  much  or  too 
little  property.  It  injured  a  man  greatly  to  behold  misery 
and  to  do  nothing  about  it,  if  he  had  the  means  to  help. 
The  influence  of  these  material  factors  could  be  turned  in 
the  right  direction  only  if  one  were  continuously  surrounded 
by  the  right  atmosphere.  As  man's  business  life  absorbed 
so  large  a  portion  of  his  time,  it  was  therefore  particularly 
important  in  that  life  to  be  surrounded  by  the  right 
moral  atmosphere.  Without  such  an  atmosphere  the  words 
of  the  church  would  be  in  vain.  But  what  moral  in- 
spiration can  there  be  in  a  constant  struggle  to  benefit  one's 
self  and  to  get  business  away  from  the  other  man  ?  Is  com- 
petitive business  morally  sound  ? 

In  dealing  with  poverty  Huber  thought  that  the  spirit  of 
Christian  charity  was  necessary.     But  charity  has  its  limits. 


26  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [26 

For  one  thing,  it  can  benefit  the  recipient  only  by  the  amount 
of  which  it  deprives  the  giver.  Besides,  it  does  not  neces- 
sarily help  the  unfortunate  back  to  self-support  and  self- 
respect.  This  work  is  the  proper  function  of  the  coopera- 
tive association. 

Such  an  organization  would  involve  no  effort  to  overturn 
the  existing  order.  In  particular  such  organizations  must 
keep  away  from  all  Utopian,  impractical  or  millennium-pro- 
ducing policies.  Their  work  is  the  improvement  of  men's 
economic  condition  and  their  characters. 

This  improvement  of  character  among  the  cooperators 
would  occur  for  two  reasons.  The  first  reason  is  the  oc- 
currence of  a  natural  reaction  when  the  degrading  pressure 
of  poverty  is  removed.  Thus  in  so  far  as  such  associations 
helped  to  remove  this  pressure,  they  would  improve  the  world 
morally.  But  there  was  also  a  second  factor.  In  so  far  as 
men  in  their  every-day  business  lives  worked  for  the  advan- 
tage of  a  group  instead  of  for  themselves  and  their  families 
alone,  their  own  horizons  would  be  enlarged  and  their 
characters  improved. 

When  in  operation  these  associations  would,  he  thought, 
work  better  if  the  individual  local  union  were  to  become  a 
member  of  a  greater  organization,  or  confederation.  But 
a  large  federation  involves  such  difficulties  of  leadership, 
that  it  is  best  to  keep  as  much  work  as  possible  in  the  small 
local  association. 

Further,  Huber  felt  strongly  that  cooperative  associations 
must  steer  clear  of  all  political  affiliations.  This  perhaps 
was  to  be  the  more  expected  because  his  own  political  ideals 
were  really  those  of  the  English  Christian  Socialists,  and 
were  but  very  imperfectly  embodied  in  the  Prussian  political 
party  for  whose  success  he  struggled  so  valiantly.  This 
view  was  made  the  more  certain  by  the  fact  that  his  ideals, 
both  religious  and  political,  were  the  very  opposite  of  those 


27]  VICTOR  AIM£  HUBER  27 

held  by  the  petty  bourgeoisie  who  came  to  dominate  the 
cooperative  movement  during  the  latter  part  of  his  life. 

The  advantages  of  cooperation  are,  he  said,  conferred  in 
very  different  degrees  by  different  types  of  associations. 
Savings  associations  had  been  established  in  Berlin  some 
time  before  by  Tiedtke.  These  were  good,  he  thought,  but 
they  were  by  their  nature  very  limited  in  their  influence. 
We  are  to  "  recognize  in  the  savings  associations  the  first, 
even  if  still  the  very  incomplete  flower  of  the  cooperative 
movement." 

Next  with  regard  to  the  social  classes  which  the  coopera- 
tive associations  should  try  to  help,  Huber  felt  that  although 
they  were  primarily  devised  to  benefit  the  day  laborer,  they 
should,  wherever  possible,  extend  their  benefits  to  the  small 
proprietor.  And  even  the  wealthy  landlord,  he  thought, 
might  on  occasion  be  glad  to  have  united  with  him  other 
smaller  men  in  some  enterprise  for  which  his  own  strength 
alone  was  not  sufficient.  To  the  wealthy  also  then  should 
all  the  benefits  of  the  associations  be  open.  No  class  lines 
might  be  drawn. 

But  with  all  these  different  classes  in  an  organization,  the 
problem  of  management  would  become  extraordinarily  dif- 
ficult. This  difficulty  Huber  recognized.  And  he  distin- 
guished three  possible  different  types  of  management  which 
might  develop: — the  monarchical,  the  aristocratic  and  the 
democratic.  Of  the  three  he  regarded  the  democratic  as 
the  most  desirable.  But  the  associations  which  had  started 
as  pure  democracies  had  almost  without  exception  either 
been  shipwrecked,  or  had  been  rescued  from  ruin  under  cir- 
cumstances which  made  the  rescuers  the  real  government 
of  the  association  from  that  time  on.  The  possibility  of 
really  democratic  associations  could  not  be  denied,  he  said, 
for  examples  certainly  did  exist.  But  given  the  standards 
of  intelligence  and  morality  which  existed  at  his  time,  other 


28  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [28 

forms  should  be  considered  first.  In  addition  to  this  it 
was  generally  true,  he  pointed  out,  that  people  of  the  lowest 
economic  classes  lacked  the  physical  and  nervous  energy 
necessary  to  keep  such  an  association  goin^.  Besides  this, 
if  the  cooperative  union  is  to  bridge  the  gulf  between  the 
upper  and  the  lower  classes,  it  should  contain  both.  This 
could  be  accomplished  by  adopting  either  the  monarchical  or 
the  aristocratic  forms  of  government.  These,  however, 
when  they  occurred,  would  usually  appear  in  some  concealed 
form.  Whatever  the  actuality,  the  form  would  normally  be 
democratic. 

The  help  of  outsiders  also,  and  even  of  the  state,  would 
sometimes  be  necessary.  But  it  should  be  accepted  as  rarely, 
and  in  as  small  quantity,  as  possible.  The  ideal  of  the  move- 
ment should  be  pure  self-help. 

His  practical  experience  in  the  work  of  running  coopera- 
tive societies  was  very  limited.  In  his  whole  life  he  founded 
but  two  such  unions.  And  his  biographer  Elvers  admits 
"  that  it  seemed  very  trivial  to  him  how  the  individual  as- 
sociations were  legally  constituted,  how  the  suffrage  was 
distributed  among  members,  how  the  powers  of  the  manage- 
ment and  of  the  general  assembly  were  marked  off,  or  how  all 
such  things  "  of  a  business  or  legal  nature  were  provided 
for.  Huber  is  important  for  us  because  he  was  the  man 
who  explained  the  cooperative  movement  to  Germany  and 
pointed  out  to  the  world  its  ethical  aspects. 


CHAPTER  III 

Schulze-Delitzsch  :  Period  of  Preparation  and 
Experiment 

From  the  ethical  theorist,  Huber,  we  turn  now  to  the 
opposite  extreme,  the  man  who  exempHfied  the  practical, 
energetic,  aggressive,  organizing  capacities  which  we 
call  business  ability.  Out  of  the  numerous  contributions  made 
by  this  new  man,  none  perhaps  deserves  higher  praise  than 
the  achievement  of  just  that  task  for  which  Huber  was  un- 
fitted, the  task  of  making  things  definite  and  giving  to  the 
cooperative  movement  the  practical  legal  form  it  needed. 
This  new  leader  was  Hermann  Schulze-Delitzsch. 

The  name  Schulze-Delitzsch  is  a  compound  consisting  of 
Schulze,  the  family  name  by  which  he  was  known  during 
the  early  half  of  his  life,  and  Delitzsch,  the  name  of  the  town 
in  which  he  lived.  This  combination  was  really  forced 
upon  him  by  the  frequency  of  the  name  Schulze  in  Germany, 
so  that  when  he  entered  public  life  and  it  became  necessary 
to  distinguish  him  from  others  of  the  same  name,  it  became 
convenient  to  adopt  as  part  of  his  own  surname  the  name 
of  the  town  which  was  his  home.  Thus  though  the  name 
Schulze-Delitzsch  was  not  born  until  the  exciting  year  of 
1848,  the  bearer  of  that  name,  Hermann  Schulze,  was  born 
nearly  forty  years  earlier  on  August  29,  1808.' 

The  Schulze  family  had  long  been  well-to-do  citizens  of 
the  little  town,  and  members  of  the  family  had  frequently 

1  Dr.  A.  Bernstein,  Schulze-Delitzsch,  sein  Leben  und  Wirken  (Max 
Ba-ding,  Berlin),  passim. 

29]  29 


30  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [30 

served  as  mayor  or  judge  for  the  municipality — ^the  latter 
position  under  the  simple  conditions  of  the  small  town, 
carrying  with  it  an  almost  patriarchial  influence  in  both 
public  and  private  life. 

The  father  of  Schulze-Delitzsch  had  in  his  turn  held  this 
position  as  Patrimonial-Richter,  when  he  married  Wilhel- 
mine  Schmorl  in  1807.  The  hero  of  this  story,  Hermann, 
was  their  first  born. 

Perhaps  the  character  of  this  new  leader  was  afifected  by 
the  magnitude  of  the  events  which  happened  around  him 
during  his  early  years.  His  childhood  covered  the  period 
of  the  Napoleonic  wars;  and  the  "  Battle  of  the  Nations  " 
was  fought  at  Leipsic,  only  a  few  miles  from  his  home.  The 
general  redistribution  of  territory  which  took  place  after 
that  battle  affected  his  family  even  more  directly,  for  a  con- 
siderable part  of  the  Kingdom  of  Saxony  was  handed  over 
to  the  Prussian  monarchy.  To  the  part  thus  handed  over 
the  village  of  Delitzsch  belonged.  Thus  our  hero's  father 
ceased  to  be  a  Saxon,  and  became  a  Prussian,  official.  The 
elder  Schulze  adapted  himself  to  the  change  at  once  and 
organized  an  association  of  lawyers  to  study  the  differences 
between  the  law  which  they  had  formerly  administered  and 
that  which  they  must  enforce  from  that  time  on. 

Hermann's  early  education  was  much  influenced  by  his 
grandfather  who  seems  to  have  been  an  exceptionally  vigor- 
ous and  public-spirited  old  war-horse.  Probably  the  old 
man  recognized  in  his  grandson  a  character  like  his  own, 
and  this  similarity  of  character  may  have  strengthened  the 
natural  interest.  Hermann's  actual  instruction,  however, 
was  under  the  supervision  of  a  liberal  clergyman,  Arch- 
deacon Morgenstern.  Under  their  stimulus  the  boy  deve- 
loped in  a  most  promising  fashion.  His  whole  childhood 
seems  to  have  been  spent  under  exceptionally  favorable 
auspices.     The  sole  handicap  was  that  the  family  income 


3 1  ]  SCHULZE-DELITZSCH  3 1 

had  to  cover  the  wants  of  nine  other  children  beside  him- 
self. 

At  the  age  of  thirteen  Hermann  was  sent  to  a  preparatory 
school  in  Leipsic.  Dr.  Forbiger,  the  head  of  the  school, 
seems  again  to  have  been  a  very  stimulating  sort  of  an  in- 
structor who  encouraged  a  good  deal  of  independent  activity 
on  the  part  of  his  students.  He  was  the  type  of  instructor 
who  tries  to  develop  individuality,  initiative  and  leadership. 

During  adolescence  Schulze  seems  to  have  been  of  an 
exceptionally  happy  disposition,  cheerful  and  abounding  in 
energy  and  spirit.  His  mother  was  fond  of  music  and  their 
home  was  a  centre  for  the  music  lovers  of  the  neighborhood. 
In  this  interest  Hermann  joined,  his  baritone  voice  later 
making  him  a  welcome  addition  to  the  group.  Furthermore, 
he  began  at  this  period  to  show  the  mild  interest  in  religion 
which  characterized  him  throughout  his  later  life,  though  he 
certainly  was  never  a  fanatic.  His  parents  were  both  pro- 
nounced liberals,  and  Schulze  represented  always  a  pretty 
advanced  type  of  religious  thought. 

After  completing  his  preparatory  work  he  spent  two  years 
in  the  University  of  Leipsic.  He  had  already  decided  to 
become  a  lawyer,  and  in  order  to  become  better  grounded  in 
Prussian  law  he  went  to  the  neighboring  university  at  Halle. 
Here  he  seems  to  have  done  his  work  sufficiently  well,  but 
all  the  recollections  of  him  are  stories  of  excursions,  of  duels, 
of  good  fellowship  and  of  high  spirits. 

In  1830  when  twenty-two  years  old,  Hermann  took  his 
first  examination  and  was  in  consequence  appointed  Axis- 
kiiltator  or  apprentice-lawyer  to  the  court  in  Torgau. 
This  was  his  first  post  in  the  public  service.  Here  he  re- 
mained a  year,  and  while  here  he  performed  also  his 
military  service.  For  to  him,  as  to  all  men  of  proper 
academic  standing,  there  was  open  the  possibility  of  com- 
muting his  required  military  service  for  the  delightful  but 


32  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [32 

expensive  year  as  a  "  one-year  volunteer  "  officer-apprentice. 

At  the  end  of  this  year  he  returned  to  Naumburg  to  pre- 
pare for  his  second  examination.  This  he  took  in  the 
autumn  of  1833  ^^^  was  appointed  Refer endar  or  appren- 
tice-judge. Thereupon  he  spent  some  time  in  studying 
criminal  law  in  Wittenberg,  and  in  April  1834,  he  returned  to 
Naumburg  to  complete  the  work  required  for  his  third 
examination.  Here  in  Naumburg  he  again  seems  to  have 
acquired  a  wide  circle  of  friends  by  his  geniality  and  com- 
panionability.  Here  also  he  indulged  in  a  more  or  less 
serious  love  affair. 

In  1835  just  as  he  was  completing  his  preparation  for 
this  third  examination,  he  received  word  that  his  father 
was  seriously  ill  and  needed  him  badly  as  a  deputy.  Cur- 
iously enough  it  was  possible  for  the  father  to  appoint  his 
son  to  act  in  this  way.  This  is  all  the  more  strange  be- 
cause the  office  was  an  important  one.  This  post  of  Patri- 
monial-Richter,  which  his  father  held,  has  no  modern 
equivalent.  It  corresponds  somewhat  to  the  old  English 
justice  of  the  peace.  Its  duties  can  be  understood  best  if  we 
translate  the  title  as  "  patriarchal  judge."  The  incumbent 
of  the  office  tried  as  a  court  of  original  jurisdiction  both 
civil  and  criminal  cases.  In  addition,  it  was  his  duty  to 
supervise  the  police,  the  village  administrations,  the  church, 
the  school  system,  the  country  roads  and  the  maintenance 
of  public  order.  Hermann's  father  had  a  long  list  of 
places  in  which  he  held  court,  for  his  district  was  a  large  one. 
As  his  father's  deputy  the  son  now  took  up  all  these  duties 
and  performed  them  effectively.  As  usual,  he  rapidly  formed 
a  large  circle  of  friends.  •  In  this  position  as  Patrimonial 
Richter,  Hermann  had  a  very  exceptional  opportunity  to 
study  the  economic  life  of  his  neighborhood.  Indeed,  it 
would  have  been  difficult  to  devise  any  kind  of  work  which 
would  more  effectively  train  a  man  to  understand  the 
economic  life  of  peasant  and  artisan. 


33]  SCHULZE-DELITZSCH  33 

By  the  spring  of  1837  the  father  had  recovered  sufficiently 
to  allow  the  son  to  return  to  his  studies.  Toward  the  end 
of  that  summer,  therefore,  Hermann  went  to  Berlin  to  take 
his  third  and  last  examination.  On  January  8,  1838  he 
took  the  oral  examination  and  was  granted  a  commission 
as  junior  judge  of  the  provincial  court  of  appeals. 

After  receiving  his  commission  he  served  for  a  while 
without  pay  as  a  member  of  the  court  at  Naumburg.  Then 
followed  various  other  posts  until  the  sickness  of  another 
relative,  Judge  Hildebrandt,  called  him  home  again  in  the 
autumn  of  1840.  This  relative,  like  Hermann's  father,  held 
the  post  of  Patrimonial-Richter  with  a  circuit  near  the 
latter's.  Again  young  Schulze  served  as  deputy,  and  again 
gave  satisfaction.  Therefore,  when  that  relative  died  in 
the  spring  of  1841,  the  post  was  at  once  conferred  upon 
young  Schulze  together  with  a  special  order  which  assured 
his  eventual  return  to  the  regular  judicial  service. 

For  the  next  eight  years  in  this  country  town  of  four  or 
five  thousand  inhabitants,  our  blithe  young  bachelor 
held  the  post  of  Patrimonial-Richter.  The  earlier  years  of 
this  service  were  marked  chiefly  by  excursions,  song  festi- 
vals and  the  like.  In  the  course  of  this  joyous  life  he 
organized  a  chorus  with  which  he  took  frequent  Sunday 
excursions  to  the  neighboring  towns.  At  first  this  chorus 
included  only  a  group  of  friends  somewhat  similarly 
educated.  But  during  the  forties  a  democratic  spirit  began 
to  be  felt  in  Germany  and  in  accordance  with  this  spirit 
working  people  also  were  admitted  to  the  chorus.  To  make 
this  admission  effective,  measures  were  taken  to  hold  down 
the  expense  of  the  excursions  so  that  the  chorus  might  be 
democratic  in  fact  as  well  as  in  theory.  The  relative  leisure 
of  the  earlier  years  of  his  service  gave  him  opportunity  also 
to  make  several  rather  longer  journeys. 

The  crop  failure  of  1846  was  the  particular  occasion  which 


34  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [34 

turned  our  gay  young  official  toward  the  course  of  his 
larger  usefulness.  But  the  first  step  was  mild  and  natural 
enough.  From  among  the  most  well-to-do  members  of  his 
chorus,  Schulze  formed  a  committee  to  help  those  who  were 
suffering.  This  activity  was  one  of  charity  only,  not  of 
reform ;  but  it  was  in  this  fashion  that  he  took  his  first  step 
away  from  the  attitude  of  benevolent  passivity.  His  com- 
mittee proved  very  efficient  and  secured  wide  support.  A 
grist-mill  was  rented,  and  a  bakery;  then  grain  was  pur- 
chased in  large  quantities  and  bread  prepared.  To  the 
very  poor  this  bread  was  given  free ;  to  those  in  distress,  but 
less  needy,  bread  was  sold  at  half  price.  Thus  in  general 
the  price,  for  them  at  least,  was  not  greatly  different  from 
the  usual  figure.  In  the  following  spring  at  points  all  over 
Prussia  there  began  to  be  food  riots  and  wholesale  robl>eries 
of  the  grain  elevators,  a  series  of  outbreaks  which  were 
checked  only  by  martial  law.  Delitzsch,  however,  escaped 
this  disturbance  and  expense,  in  part  because  of  the  uncom- 
promising attitude  of  our  young  Patrimonial-Richter  and 
in  part,  perhaps,  because  his  effective  charity  organization 
had  already  removed  the  chief  cause  of  the  rioting. 

This  winter  of  iS^G-'^y  was  a  season  of  particular  dis- 
tress in  a  period  when  times  had  been  none  too  good.  Thus 
1847,  ^s  might  be  expected,  was  a  year  of  political  unrest. 
The  Landtag  met,  demanded  a  constitution,  was  refused  and 
dissolved.  Then  came  a  winter  of  violent  discussion,  the 
revolution  in  Berlin  in  March  13-16,  1848,  and  finally  the 
king's  appointment  of  a  Liberal  ministry  with  his  promise 
to  summon  parliament.  In  the  election  of  May,  1848,  the 
candidate  of  the  Democratic  party,  our  Schulze,  was  chosen 
to  represent  the  district  of  Delitzsch. 

When  the  national  assembly  met,  in  the  following  October, 
it  soon  apf>eared  that  there  were  a  large  number  of  members 
named  Schulze.     So  to  distinguish  himself  from  the  others 


35]  SCHULZE-DELITZSCH  35 

Hermann  adopted  the  name  by  which  he  was  ever  after 
known — ^Schulze-Delitzsch.  It  also  appeared  very  promptly 
that  the  assembly  was  deluged  with  petitions  from  various 
working-men's  organizations.  It  was  necessary  to  go 
through  these  petitions,  and  to  work  out  for  the  assembly 
some  statement  of  the  various  grievances  and  the  kinds  of 
relief  demanded.  To  the  committee  which  had  this  task 
in  charge  Schulze-Delitzsch  was  appointed  as  chairman. 
The  report  of  this  committee  was  never  presented  to  the 
assembly,  but  its  preparation  certainly  formed  part  of 
Schulze's  marvelous  education  for  the  work  he  was  to  do, 
for  these  petitions  contained  not  only  statements  of  the  peti- 
tioners' needs,  but  also  descriptions  of  the  various  institu- 
tions, cooperative  and  otherwise,  that  were  being  used  in 
efforts  to  meet  those  needs. 

Perhaps  it  was  the  grievances  which  he  discovered  by 
reading  some  of  these  1600  petitions  that  prepared  Schulze's 
mind  for  the  vigor  of  his  next  step.  Perhaps  it  was  his 
youth  combined  with  the  aggressiveness  and  daring  which 
always  characterized  him.  At  any  rate,  it  so  happened  that 
one  of  the  assembly's  first  debates  came  on  the  question  of 
whether  it  should  call  itself  a  constitutional  assembly  or 
not.  Naturally  the  reactionaries  were  opposed.  In  a 
short  speech  Schulze-Delitzsch  supported  the  reactionary 
position  in  this  matter — but  on  the  ground  that  the  question 
was  a  formal  one  only  and  delayed  the  more  serious  business 
of  replacing  the  bankrupt  absolutism  by  a  constitutional 
monarchy.  At  a  time  when  even  the  claims  of  the  Prussian 
monarch  to  divine  right  were  accepted  pretty  generally,  this 
speech  because  of  its  drastic  quality,  called  attention  to  its 
maker.  It  aroused  against  him  the  bitter  hostility  of  the 
autocracy,  an  hostility  which  became  one  of  the  most  im- 
portant facts  of  his  life  for  the  next  ten  years. 

Curiously  enough  the  last  act  of  this  assembly  was  to 


36  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [36 

pass  a  resolution  of  our  Schulze-Delitzsch.  Driven  out  of 
its  regular  meeting  place  by  military  force,  the  assembly  met 
in  various  informal  places.  On  the  fifteenth  of  November, 
as  it  was  debating  a  vote  of  want  of  confidence,  which  had 
been  presented  by  Schulze-Delitzsch  and  two  others,  soldiers 
came  into  the  hall  which  they  were  then  using  and  closed 
the  assembly  by  force — ^but  not  before  it  passed  his  resolu- 
tion unanimously. 

Then  came  the  reaction.  On  the  second  of  the  following 
January  a  royal  order  concerning  the  organization  of  the 
judiciary  abolished  the  Patrimonial-Richter  and  conse- 
quently Schulze-Delitzsch's  job.  Theoretically  these  judges 
were  irremovable  as  are  the  American  federal  judiciary. 
Furthermore,  they  could  not,  according  to  Prussian  law,  be 
transferred  from  place  to  place  without  their  own  consent. 
But  the  autocracy  decided  that  this  article  of  the  constitu- 
tion did  not  apply  in  their  case.  Thus  in  the  eyes  of  the 
autocracy  Schulze-Delitzsch  was  still  a  judge  and  was  with- 
out an  income  merely  because  he  happened  to  be  temporarily 
awaiting  appointment  to  some  particular  court. 

In  February  of  this  same  year,  1849,  Schulze-Delitzsch 
again  became  a  candidate  for  the  assembly  and  was  reelected 
in  spite  of  the  bitter  opposition  of  the  reactionary  party. 
In  this  parliament  Schulze-Delitzsch  seems  to  have  taken 
little  or  no  part  in  the  discussions  of  domestic  affairs, 
but  he  did  make  a  rather  noteworthy  speech  urging  that 
the  king  of  Prussia  accept  the  crown  of  German  emperor 
which  had  been  offered  him  by  the  abortive  Frankfort  par- 
liament. However  complimentary  such  urging  might  have 
been,  it  certainly  was  not  without  embarrassment  to  the 
Prussian  king. 

In  this  year  also  Schulze  paid  a  short  visit  to  Rodbertus, 
the  Socialist,  and  incidentally  availed  himself  of  the  latter's 
excellent  library,  which  included  a  wonderful  collection  of 


37]  SCHULZE-DELITZSCH  2,7 

material  on  cooperation.  Apparently,  however,  neither  of 
these  remarkable  men  influenced  the  more  ftmdamental 
views  of  the  other.  After  this  visit  he  returned  to  Delitzsch, 
closed  up  his  work  there  and  turned  over  the  office  which 
had  formed  so  large  a  part  of  his  life. 

In  April  of  this  year  (1849)  democratic  suffrage  was 
replaced  by  the  three-class  voting-system  which  kept  the  ap- 
pearance, but  destroyed  the  substance  of  universal  suffrage. 
Then  in  May  there  began  the  trial  of  Representative  Wal- 
deck  on  the  charge  of  treason.  It  was  alleged  that  he  had 
planned  to  establish  a  social-democratic  state.  After  a  very 
exciting  trial  he  was  pronounced  not  guilty.  Thereupon 
the  king  demanded  of  the  assembly  the  creation  of  a  special 
tribunal  to  deal  with  treason  and  other  crimes  against  the 
safety  of  the  state.  In  this  special  court  there  was  no  jury. 
The  judge  was  to  pass  on  the  facts.  Through  such  a 
court  with  its  personally  appointed  judges  the  king  could 
punish  any  man  by  merely  calling  his  action  treason.  But 
in  order  to  secure  the  king's  assent  to  the  new  constitution 
the  assembly  yielded,  thus  establishing  one  of  the  institu- 
tions by  which  Prussia  was,  even  in  19 13,  distinguished  from 
the  rest  of  the  civilized  world. 

The  next  step  taken  by  the  autocracy  was  to  accuse 
Schulze-Delitzsch  and  forty-one  other  members  of  the 
national  assembly  of  high  treason.  Their  particular  crime 
consisted  in  their  refusal  to  vote  the  taxes  demanded  while 
they  were  members  of  the  assembly.  But  it  was  promptly 
pointed  out  that  under  the  law  of  June,  1848,  this  was  no 
ground  for  criminal  proceedings.  Then  the  government 
decided  that,  although  they  had  the  right  to  refuse  the  taxes, 
they  had  no  right  to  make  their  refusal  known.  Their  pub- 
lication of  this  resolution  of  the  assembly,  it  was  charged, 
was  an  incitement  to  riot.  Luckily  for  the  accused  members 
they  could  not  legally  be  tried  by  the  newly  created  special 


38  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [38 

tribunal.  However,  it  was  possible  to  try  them  collectively 
in  Berlin  instead  of  individually,  each  in  his  home 
town.  The  occupations  of  the  defendants  in  this  trial  were 
noteworthy.  Of  the  forty-two  accused,  eight  were  clergy- 
men, three  were  teachers,  four  were  public  officials,  while 
eight  were  judges. 

In  February,  1850,  the  case  of  Schulze-Delitzsch  came  be- 
fore the  court.  It  was  established  that  he  had  repeatedly 
done  what  he  could  to  prevent  violence  during  the  troublous 
times.  The  only  evidence  against  him  was  his  open  opposi- 
tion to  the  existing  government.  He  conducted  his  own 
defence,  and  made  a  really  notable  speech  in  his  closing* 
argument.  He  contended  that  he  had  exercised  only  his 
constitutional  rights;  and  in  this  the  jury  concurred.  All 
of  the  forty-two  with  one  single  exception  were  acquitted. 
Schulze's  speech  not  only  affected  the  results  of  all  these 
trials,  but  had  considerable  political  effect  as  well. 

But  his  acquittal  left  him  in  a  position  none  too  happy. 
He  was  a  judge  without  a  court,  and  without  salary,  depend- 
ent on  a  hostile  administration  for  assignment.  During 
this  year  he  published  his  first  book,  a  small  volume  entitled, 
Notes  on  Trade  and  Labor  Organizations  which  gives 
relatively  little  indication  of  the  great  value  of  his  future 
productions.  Finally,  in  the  autumn  of  this  year  he  re- 
ceived an  assignment.  By  this  he  was  ordered  to  Wreschen, 
a  miserable  little  village  in  one  of  the  most  backward  pro- 
vinces of  the  kingdom,  the  province  of  Posen.  Wreschen 
was  inhabited  chiefly  by  Jews  and  Poles.  It  contained 
very  few  Germans.  As  was  natural,  the  judge's  salary  in 
such  a  district  was  exceedingly  small.  * 

Being  now  (1850)  in  the  worst  circumstances  in  which 
he  had  ever  found  himself,  Schulze-Delitzsch  proceeded  to 
get  married.  His  wife  was  the  daughter  of  a  well-to-do 
Berlin  family.     To  her  he  had  been  attracted  by  her  musical 


39]  SCHULZE-DELITZSCH  39 

ability.  But  it  must  have  been  a  severe  drain  upon  her 
courage  to  follow  him  first  to  so  uncomfortable  a  home,  and 
later  upon  the  still  less  happy  course  along  which  his  con- 
victions and  the  hostility  of  the  government  united  to  drive 
him. 

However,  his  first  year  in  this  new  post  was  comparatively 
happy.  It  was  marked  by  his  settlement  of  a  lawsuit  which 
dated  from  the  previous  century.  The  pleadings  in  this 
case  had  grown  so  voluminous  that  judges  had  in  turn  be- 
come afraid  to  render  any  decision.  This  case  was  assigned 
to  Schulze-Delitzsch,  who  was  able  to  settle  it  to  the  satis- 
faction of  all  concerned  before  the  end  of  the  court  term 
of  the  following  year.  During  this  year  also  a  son  was 
born  to  him. 

The  vacation  period  of  the  summer  of  1851  Schulze 
wished  to  use  in  travelling.  But  he  had  some  difficulty  in 
obtaining  the  needed  permission  from  the  ever  hostile 
ministry.  Only  the  intervention  of  his  chief  secured  it  for 
him.  Finally,  the  permission  was  given,  but  on  the  con- 
dition that  he  would  not  use  it  to  visit  Delitzsch,  where  it 
was  feared  his  presence  would  again  stir  up  party  feeling  of 
the  wrong  kind.  Schulze  accepted  the  permit  and  departed 
at  once  for  Delitzsch  where  he  received  an  ovation.  On 
his  return  to  work  he  received  notice  from  the  minister  of 
justice  that  he  had  been  fined  a  month's  pay  for  his  diso- 
bedience. Immediately  Schulze  declared  that  such  a  fine 
was  an  infringement  upon  the  privileges  of  the  judge's  office, 
and  that  if  one  penny  were  deducted  from  his  salary,  he 
would  leave  the  service  of  the  state.  The  chief  justice  of 
his  district  tried  to  get  him  to  change  his  mind,  and  then 
tried  to  get  the  fine  remitted  in  view  of  the  excellent  work 
Schulze  had  done  in  the  previous  winter.  But  both  Schulze 
and  the  minister  of  justice  remained  obdurate.  The  only 
possible  result  of  such  a  situation  followed.  Schulze  ten- 
dered his  resignation  and  it  was  accepted. 


40  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [40 

October,  1851,  found  Schulze-Delitzsch  in  a  very  serious 
predicament.  The  continental  preparation  for  a  judge  is 
not  precisely  the  same  as  for  a  lawyer.  He  had  never  been 
admitted  to  the  bar.  He  was  out  of  a  job,  and  practically 
excluded  by  the  royal  hostility  from  the  only  occupation  for 
which  he  was  peculiarly  fitted.  He  was  middle-aged  and 
far  too  old  to  master  a  new  profession  easily.  He  had  a 
wife  and  child  dependent  on  him.  The  income  from  his 
wife's  dowry  was  scanty,  and  his  own  savings  were  small 
In  this  predicament  he  returned  to  Delitzsch  where  his  family 
was  given  a  separate  apartment  on  the  second  floor  of  his 
father's  house.  For  several  months  Schulze-Delitzsch  did 
nothing.  Then  he  began  to  do  some  odd  jobs  as  a  law  clerk, 
but  for  a  considerable  period  his  income  was  precarious,  to 
say  the  least. 

During  all  this  time  he  had  kept  up  his  interest  in  his 
less  well-to-do  townsmen.  In  the  anxious  summer  of  1849, 
after  he  had  lost  his  position  as  Patrimonial-Richter  and 
while  the  indictment  was  still  hanging  over  his  head,  he 
had  founded  his  first  cooperative  society.  This  was  a 
friendly  society  of  the  type  which  provided  insurance 
against  sickness  and  death.  It  seems  to  have  been  similar 
to  the  English  societies.  But  it  is  not  likely  that  it  was 
copied  from  them  directly,  for  similar  institutions  had  long 
before  this  spread  into  Germany.  In  the  autumn  of  this 
year  (1849)  ^^  founded  two  cooperative  purchasing  socie- 
ties to  be  described  later,  and  in  1850,  the  year  of  his  trial, 
he  founded  a  loan  association. 

This  loan  association,  as  started  in  1850,  copied  the  Eng- 
lish model  with  which  Schulze  now  seemed  to  be  familiar 
through  the  writings  of  Huber.  This  society  consisted  of 
honorary  members  as  well  as  beneficiaries.  Even  this  associa- 
tion marked  a  step  in  advance,  for  in  this  organization,  for 
the  first  time  in  Germany,  borrowers  were  required  to  make 


^l]  SCHULZE'DELITZSCH  41 

regular  contributions  toward  the  capital  of  the  creditor 
society/  But  when  Schulze-Delitzsch  was  sent  to  Wres- 
chen,  the  honorary  members  withdrew.  This  was  partly 
because  of  his  absence,  but  largely  because  of  the  general 
spirit  of  reaction  which  spread  all  over  Germany  in  the 
years  immediately  after  the  unsuccessful  revolution  of  1848. 
Thus  on  his  return  from  Wreschen  Schulze  found  in  his 
society  only  the  beneficiary  members,  the  would-be  bor- 
rowers. And  these  too  were  in  a  bad  way,  for  the  society's 
capital  had  been  mostly  lost  through  unwise  loans.  By  the 
spring  of  1852  it  looked  as  if  everything  he  had  ever  tried 
had  been  a  failure,  and  he  was  forty-three  years  old. 

At  this  point  Schulze-Delitzsch,  without  apparently  realiz- 
ing its  importance  in  any  way,  made  his  greatest  single 
contribution  to  progress.  This  lay  in  an  apparently  slight 
change  in  the  constitution  of  his  society.  If  he  had  striven 
to  get  in  a  new  set  of  wealthy  patrons  or  honorary  memt)ers, 
perhaps  the  English  history  would  merely  have  been  repeated, 
certainly  he  would  not  have  been  the  founder  of  a  new  type 
of  society.  As  it  happened,  he  merely  accepted  the  situa- 
tion as  it  then  was,  and  reorganized  the  society  on  the  basis 
on  whick  it  then  existed — 2l  society  of  borrowers  only.  It 
was  thus  the  first  really  independent  organization  of  small 
borrowers  of  the  lower  social  class.  Thus  was  created  in 
1852  his  first  people's  bank. 

Before  taking  up  the  history  of  this  institution  it  is  well 
to  point  out  that  these  associations  will  have  at  least  one 
advantage  which  no  movement  in  cooperative  finance  had 
previously  had.  That  advantage  is  thoroughly  trained  leader- 
ship. Schulze  was,  through  Huber,  Rodbertus  and  other- 
wise, familiar  with  the  English  and  French  experience. 
Through  his  service  on  the  assembly's  committee  on  peti- 

1 M.  Fassbender,  F.  IV.  Raiffeisen  in  seinem  Lehen,  Denken  ttnd 
Wirken,  p.  103. 


^2  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [42 

tions  he  was  familiar  also  with  the  Prussian  experience. 
His  training  in  law  at  least  warned  him  what  dangers  to 
avoid,  while  his  experience  as  Patrimonial-Richter  had 
brought  him  into  daily  contact  with  the  needs  and  difficul- 
ties of  the  people  he  was  to  help.  In  addition  to  this,  his 
own  character  was  well  adapted  to  the  task.  With  one  pos- 
sible exception,  certainly  no  other  leader  in  cooperative 
finance  has  ever  been  so  ideally  equipped. 

From  the  reorganization  of  this  cooperative  society  in 
1852  until  his  death  on  the  twenty-ninth  of  April,  1883, 
Schulze's  life  was  so  absorbed  in  the  cooperative  movement 
that  it  can  be  profitably  considered  onl}^  in  connection  with 
that  aspect  of  the  movement  which  was  his  special  interest, 
and  to  which  he  gave  his  name — ^the  Schulze-Delitzsch 
banks. 


CHAPTER  IV 
Schulze-Delitzsch  :  His  Project  of  1852 

Because  the  organization  of  his  first  bank  formed  so 
decisive  a  turning  point  in  his  life,  and  because  the  plans 
for  this  institution  are  so  important  for  our  purposes,  it 
seems  worth  while  to  study  somewhat  in  detail  the  steps 
by  which  this  bank  was  developed.  Let  us  follow,  then, 
the  development  of  its  business  policy. 

It  will  be  recalled  that  in  the  summer  of  1849  Schulze- 
Delitzsch  founded  a  friendly  society,  and,  in  the  autumn  of 
that  year,  a  cooperative  purchasing  society  for  cabinet- 
makers. Finally,  in  the  winter  of  that  same  year,  he  organ- 
ized a  cooperative  purchasing  society  for  the  master  shoe- 
makers of  his  village.  These  were  the  first  true  coopera- 
tive societies  in  Germany,  if  we  accept  as  our  definition  of 
cooperative  societies  the  following  fairly  common  descrip- 
tion; namely,  societies,  not  for  profit  on  capital  invested, 
which  exist  to  further  the  economic  life  of  their  members.^ 

In  his  own  mind  Schulze-Delitzsch's  activity  throughout 
was  designed  to  benefit  both  laborer  and  small  business  man. 
Throughout  he  seems  to  have  regarded  the  two  as  identical. 
Actually  his  work  chiefly  aided  the  small  business  man. 
The  members  of  his  associations  were,  at  first  at  least,  men 
of  the  rank  of  our  shoe-repair  men  today,  men  running 
their  own  little  shops  and  doing  their  own  work.  These 
men  were  handicapped  in  competition  with  the  larger 
business  enterprises  and  with  factories  by  this  fact  among 

1  W.  Wygodzinski,  Das  Genossenschaftswesen  in  Deutschland,  p.  i6  ff. 
43J  43 


44  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [44 

others:  they  could  not  buy  their  materials  in  quantity  and 
could  not  pay  cash.     They  had  neither  money  nor  credit. 

To  meet  this  condition,  the  shoemaker's  cooperative  pur- 
chasing society  secured  a  loan  of  $720.00  with  which  it 
bought  in  Leipsic  a  supply  of  leather.  The  size  of  this  pur- 
chase enabled  the  society  to  buy  at  a  lower  price  than  its 
members  were  ordinarily  able  to  buy.  This  supply  the 
society  resold  to  its  members  at  an  8%  advance.  But,  in 
spite  of  this  increase  in  price,  the  shoemakers  received  their 
raw  material  at  a  price  about  15%  less  than  usual.  The 
8%  profit  of  the  society  was  for  three  purposes :  paying  the 
interest  on  the  borrowed  capital,  covering  the  cost  of  man- 
agement and  building  up  a  surplus  in  the  society's  coffers.^ 

But  this  purchase  at  wholesale,  instead  of  solving  the 
problem,  served  only  to  bring  to  light  a  second  and  more 
serious  aspect  of  the  master  handworker's  difficulties: — ^ 
the  members  of  the  cooperative  purchasing  society  did  not 
have  the  money  with  which  to  buy  this  cheap  raw  material 
from  their  own  purchasing  society.  Credit  in  some  form 
was   necessary. 

The  cooperative  purchasing  society  might  itself  |)erhaps 
have  given  credit.  But  at  this  point  Schulze  decided  on  a 
policy  which  since  that  time  has  been  basic  in  the  develop- 
ment of  the  Schulze-Delitzsch  cooperative  societies :  namely, 
the  separation  of  credit  and  sales. 

Those  who  could  pay  cash  were  not  to  have  the  useful- 
ness to  them  of  their  purchasing  society  handicapped  by  any 
credit  risks.  The  high  additional  cost  of  goods  at  retail  is 
in  part  due  to  just  this  credit  risk.  The  good  customers 
and  the  cash  customers  are  charged  enough  to  cover  the 
losses  due  to  the  bad  debts  and  the  expense  of  collecting 
from  some  of  the  credit  customers.     But  the  ordinary  re- 

1  W.  Wygodzinski,  op.  cit.,  p.  17. 


^c]  SCHULZE'DELITZSCH  45 

tailer  dare  not  make  an  extra  charge  to  cover  this  extra 
cost.  Only  an  enterprise  that  was  sure  of  its  market  could 
dare  to  refuse  credit.  The  market  for  Schulze's  leather 
was  assured,  if  only  he  could  make  his  customers  able  to 
pay.  For  this  purpose  he  therefore  founded  in  1850  his 
first  loan  association,  to  which  some  well-to-do  friends  con- 
tributed a  capital  of  $140.00. 

Schulze-Delitzsch's  loan  association  of  1850  differed  from 
previous  charitable  loan  associations,  such  as  had  been  cus- 
tomary in  Germany,  only  in  the  fact  that  borrowers  were 
required  to  join,  and  to  contribute  five  cents  a  month  to- 
ward the  permanent  capital  of  the  society.  Here  he  simply 
adopted  the  principle  of  the  English  cooperative  savings 
and  loan  associations,  in  which  the  borrowers  like  the 
lenders  were  required  to  join  and  contribute  to  the  society's 
capital. 

To  us  this  demand  for  five  cents  a  month  seems  amazingly 
small,  even  after  allowance  has  been  made  for  the  difference 
in  the  purchasing  power  of  money.  But  it  must  be  remem- 
bered that  for  people  who  could  save  but  little,  and  were 
perhaps  saving  nothing,  it  was  a  demand  in  the  direction 
of  increasing  independence  and  self-reliance.  In  fact,  one 
of  the  great  principles  for  which  Schulze  stood  dogmatically 
all  his  life  was  that  of  self-help. 

He  was  thoroughly  consistent  in  this.  It  was  no  accident 
that  Schulze-Delitzsch  helped  first  the  small  business  men. 
He  had  the  political  outlook  of  a  classical  economist,  he 
had  their  same  ignorance  of  the  advantages  of  large-scale 
production,  he  looked  forward  to  a  world  in  which  every 
man  would  serve  the  public  interest  best  by  bargaining  each 
for  his  own  private  gain.  He  differed  from  the  English 
classical  economists  chiefly  in  that  he  was  interested  in  a 
different  set  of  practical  reforms.  In  particular  he  desired 
to  give  each  reliable  and  honest  man  a  chance  to  do  business 


46  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [46 

for  himself,  to  remove  at  least  one  of  the  causes  of  inequality 
of  opportunity. 

This  first  loan  union,  as  has  been  said,  was  not  original, 
even  in  its  one  unusual  aspect,  the  borrowers'  contribution 
toward  capital.  In  this  respect  it  was  much  like  the  building 
and  loan  associations.  Even  in  Germany,  according  to 
Baer,  there  were  already  a  large  number  of  such  institutions. 
Like  others  of  the  same  type,  this  first  loan  union  did  not 
prosper.  Its  leader,  Schulze,  was  sent  to  Wreschen.  Its 
funds  were  lost  through  bad  loans.  Its  wealthy  members 
withdrew.  All  together,  when  Schulze  returned  to  Delitzsch 
in  1 85 1,  his  organization  was  as  nearly  a  complete  wreck  as 
one  could  imagine.  The  society  then  consisted  only  of  a 
group  of  men  who  desired  to  iborrow,  but  who  had  neither 
capital  nor  credit. 

In  the  meantime  a  friend  of  his.  Dr.  Bernhardt,^  and  a 
tailor  named  Bauerman,*  had  founded  a  cooperative  credit 
society  along  similar  lines  in  Eilenburg,  a  town  near 
Delitzsch.  But  this  Eilenburg  society,  founded  October  i, 
1850,  was  distinctive  in  that  patrons  and  charity-givers 
were  excluded.  The  membership  of  the  society  consisted 
solely  of  borrowers.  In  all  previous  loan  organizations  the 
membership  had  consisted  of  borrowers  and  lenders,  or  of 
lenders  alone.  This  Eilenburg  society  had  then  borrowed 
what  money  it  needed  on  the  security  of  the  joint  and 
several  liability  of  its  members. 

In  this  latter  respect  the  Eilenburg  union  only  followed 
the  plan  which  had  already  been  adopted  in  Delitzsch  by  the 
shoemakers'  cooperative  purchasing  society.^  But  this 
society  in  Eilenburg  was  a  genuine  banking  organization. 
It  borrowed  in  order  to  lend.     This  was  not  true  of  the 

^  W.  Wygodzinski,  op.  cit.,  p.  18. 

2  Herrick  and  Ingalls,  Rural  Credits,  p.  257. 


47]  SCHULZE-DELITZSCH  47 

Delitzsch  shoemakers'  cooperative.  Furthermore  the  society 
in  Eilenburg  had  another  interesting  feature.  Dr.  Bern- 
hardt recognized  the  danger  of  doing  business  on  too  narrow 
a  margin.  Under  his  leadership  the  society  strove  to  ac- 
cumulate a  considerable  capital  of  its  own.  To  do  this 
each  member  was  urged  to  contribute  a  share  to  the  society*s 
capital  by  means  of  regular  contributions.  But  this  proved 
difficult,  and  the  society  was  compelled  to  depend  very  largely 
on  borrowed  money.  ^ 

This  credit  union  in  Eilenburg  started  in  1850  with  180 
members.  By  1852  it  contained  ''  586  members  to  whom 
it  had  made  717  loans  averaging  200  thalers  ($142.00)  each. 
A  few  years  later,  however,  it  disbanded  because  of  a  misun- 
derstanding between  Dr.  Bernhardt  and  the  tailor  Bauer- 
man  — ''.^  To  this  information  Dr.  Finck  adds  that,  in 
order  to  achieve  this  success  in  securing  loans  for  its 
members,  the  society  had,  by  the  year  1854,  borrowed  an 
amount  equal  to  twenty-six  times  its  own  capital.  Un- 
fortunately, at  just  the  time  when  the  society's  business  was 
so  extended,  a  commercial  crisis  broke  out  and  the  society 
suffered  damage  which  it  took  some  time  to  repair.' 

In  the  summer  of  1852  these  difficulties  had  not  yet  ap- 
peared, so  Schulze  adopted  the  general  plans  of  the  Eilen- 
burg union  in  the  reorganization  of  his  society  in  Delitzsch. 
Schulze-Delitzsch,  however,  did  not  make  the  mistake  which 
was  later  to  be  made  in  Eilenburg.  He  insisted  on  such  con- 
tributions from  his  members  that  by  the  year  1854  the 
borrowed  capital  of  his  union  was  but  3J4  times  as  great 
as  the  union's  own  capital. 

From  the  time  of  this  reorganization  in  the  summer  of 

1  Supra  and  Wygodzinski,  op.  cit.,  p.  18. 

2  Herrick  and  Ingalls,  Rural  Credits,  p.  265. 

•  R.  Finck,  Das  Schulze-DcUtssche  Genossenschaftswesen,  p.  ^. 


^8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [48 

1852,  the  principles  of  the  Schulze-DeUtzsch  people's  banks 
have  been  substantially  the  same.  They  are  as  follows : 
( I )  The  exclusion  of  charity  and  patronage.  The  society 
was  to  be  run  on  business  principles.  (2)  The  joint 
liability  of  all  members  for  the  debts  of  the  society.  (3) 
Systematic  borrowing  or  acceptance  of  deposits  on  the 
basis  of  this  joint  liability.  (4)  Loans  only  to  those  who 
could  use  them  productively.  (5)  Regular  contributions 
by  members  toward  the  society's  working  capital.  (6) 
One  more  principle  which  was  adopted  later :  namely,  an 
inclusive  membership,  that  is  a  membership  open  to  all 
worthy  seekers  after  credit,  not  limited  to  any  one  occupa- 
tion, social  class  or  even  to  too  small  a  geographical  area. 

Briefly,  this  first  j>eople's  bank  could  be  described  as  a 
cooperative  savings  and  loan  association  which  differed 
from  the  ordinary  English  models  in  three  respects :  ( i )  It 
lent  money  to  members  for  business  use  only,  and  only  for 
short  periods.  (2)  It  accepted  deposits  and  borrowed 
money  as  part  of  its  regular  program.  The  English  socie- 
ties had  done  this,  but  not  as  a  regular  business,  except,  of 
course,  in  such  unusual  cases  as  the  Birkbeck  bank.  (3) 
It  made  explicit  the  liability  of  members  for  the  debts  of  the 
society.  This  was  not  a  case  of  directors  individually  as- 
suming a  responsibility  for  the  benefit  of  meml^ers.  Nor 
was  it  a  case  where  members,  though  legally  liable,  were 
subject  to  no  real  risk  beyond  the  loss  of  a  portion  of  the 
amounts  they  had  paid  on  their  shares.  It  cannot  be  em- 
phasized too  strongly  that  the  fundamental  principle  of 
these  new  organizations  of  borrowers  was  the  member's 
unlimited  liability  to  the  creditors  of  the  society. 

This  unlimited  liability  served  two  purposes.  It  re- 
minded members  pretty  strongly  of  their  duty  to  see  that 
the  society  was  run  properly.  It  helped  to  bring  home  to 
each  man  his  responsibility  for  the  success  of  the  union. 


49]  SCHULZE-DELITZSCH  49 

In  the  second  place  it  helped  to  secure  for  the  society  the 
confidence  of  possible  creditors  and  depositors.  The  mem- 
bers' only  protection  lay  in  the  fact  that  the  general  assembly 
imposed  on  the  officers  a  restriction  as  to  the  total  amount 
of  debt  which  the  society  might  incur. 

Even  as  late  as  the  spring  of  1S52,  Schulze-Delitzsch 
had  been  extremely  unwilling  to  accept  the  money  of  out- 
siders', that  is,  to  do  the  very  thing  which  formed  the  basis 
of  his  life  work.^  But  circumstances  and  the  absolute  need 
for  capital  were  too  much  for  him.  In  1852  he  had  peti- 
tioned the  city  council  in  Delitzsch  to  lend  to  his  society 
$150.00  without  interest.  This  loan  was  to  be  secured  to 
them  by  the  $120.00  which  was  already  the  association's 
property,  and  by  a  claim  on  the  monthly  contributions  of 
members.  In  addition  to  this  the  city  government  was  to 
appoint  three  of  its  members  to  the  directorate  of  the  society, 
and  one  of  these  three  was  to  be  the  president  of  the  bank. 

Luckily  for  the  future  of  the  cooperative  banking  move- 
ment, this  request  was  refused.  Then  Schulze-Delitzsch 
recognized  that  borrowing  from  outsiders  was  inevitable. 
But  even  then  he  regarded  this  resource  as  a  temporary 
measure  only.  It  is  interesting  to  note  that  the  by-laws  of 
the  Delitzsch  bank  adopted  during  this  year  provided  that  the 
entrance  fees,  the  monthly  "  dues  "  and  one  tenth  of  the 
annual  dividends  should  be  set  aside  as  a  fund  for  paying 
future  costs  of  operation  and  for  freeing  the  association 
from  the  debt! 

The  first  statutes  prescribed  the  following  requirements 
for  borrowers: — ^(i)  The  borrower  must  have  been  a 
member  in  good  standing  and  have  paid  dues  for  at  least 
three  months.  (2)  He  must  not  have  been  convicted  of 
crime.     (3)   He  must  not  have  defaulted  on  a  previous  debt, 

1  M.  Fassbender,  op.  cit.,  p.  125. 


^O  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [50 

either  as  principal  or  as  surety.     (4)   His  circumstances 
must  be  such  as  to  give  the  necessary  security  for  the  loan. 

The  rule  that  loans  should  be  granted  to  members  only, 
has  been  in  practice  one  of  very  great  importance.  Dr. 
Bernhardt's  bank  in  Eilenburg,  the  original  cooperative  bank, 
had  no  such  rule  and  had  got  into  difficulties,  in  part  at 
least,  because  of  these  loans  to  outsiders.^ 

The  Delitzsch  institution  was  copied  widely,  but  the  copies 
did  not  always  keep  to  this  rule,  that  is,  making  loans  only 
to  members.  Then  in  the  seventies  a  period  of  hard  times 
caused  a  large  number  of  bankruptcies  among  the  unions 
which  granted  credit  to  non-members.^  This  series  of  dis- 
asters pointed  out  emphatically  to  all  such  unions  the  wis- 
dom of  restricting  loans  absolutely  to  their  own  membership. 

In  admitting  members  Schulze-Delitzsch  strove  hard  to 
restrict  the  newcomers  to  those  who  could  meet  certain 
qualifications.  To  quote  briefly  from  one  of  his  publica- 
tions :  "  In  order  to  belong  to  a  union  which  is  founded  on 
self-help,  on  the  members'  own  strength,  naturally  one  must 
be  in  the  position  to  be  able  to  help  himself.  .  .  .  For  the 
credit  unions,  if  they  are  to  win  a  lasting  success,  must 
absolutely  not  get  themselves  mixed  up  with  charity  cases; 
for  they  are  not  designed  to  support  the  poor,  but  what  is 
more  important — to  prevent  poverty." 

As  has  been  pointed  out,  Schulze-Delitzsch  soon  decided 
that  his  societies  should  not  restrict  their  membership  to 
one  occupation.  His  first  efforts  had  l^een  for  one  group 
of  shoe-makers.  Now  it  seemed  desirable  to  include  men 
from  other  trades.  But  not  only  were  other  master  hand- 
workers included,  but  all  those  were  to  be  included  who 
desired  credit  and  were  worthy  of  it.     A  society  which  in- 

^  M.  Fassbender,  F.  W.  Radffeisen,  p.  127. 

3  R.  Finck,  Das  Schulze-Delitzsche  Genossenschaftswesen,  p.  27. 


51  ]  SCHULZE-DELITZSCH  51 

eluded  hand- workers  only  seemed  undesirable  for  several 
reasons.  In  the  first  place  a  broader  membership  would 
make  it  possible  to  secure  more  capital.  In  the  second  place 
a  broader  membership  would  throw  into  the  background 
the  jealousies  which  would  be  aroused  among  the  various 
applicants  for  loans  if  all  the  borrowers  were  trade  com- 
petitors. In  the  third  place  there  is  greater  safety  in  a 
fairly  broad  distribution  of  credit  risks.  Finally  there 
were  too  few  of  these  master  hand-workers  to  make  a 
sizable  credit  union.  For  these  reasons  Schulze-Delitzsch 
decided  on  a  policy  which  has,  as  has  been  already  mentioned, 
become  one  of  the  fixed  principles  of  his  societies;  namely^ 
a  varied  membership.^ 

But  the  description  of  how  Schulze-Delitzsch  developed 
his  plan  would  be  meaningless  unless  we  also  understood 
the  conditions  under  which  this  plan  was  evolved.  We 
must  remember,  therefore,  that  the  Industrial  Revolution, 
which  had  produced  such  momentous  results  in  England 
during  the  period  from  1770  to  1830,  did  not  affect  Ger- 
many until  about  1840.  Then  the  appearance  of  the  rail- 
way and  of  the  factory  began  to  produce  in  Germany  the 
same  results  which  had  appeared  in  England  fully  half  a 
century  earlier.  In  particular  this  meant  that  the  master 
artisans,  who  had  until  that  time  literally  made  by  hand  the 
manufactured  products  of  the  day,  were  now  subjected  to 
competition  from  the  factories.  Being  unable  to  meet  this 
competition  satisfactorily,  they  suffered  greatly. 

Out  of  this  suffering  had  come  unrest  and  the  political 
disturbance  described  in  the  previous  chapter.  As  was  to 
be  excepted,  the  master  artisans  who  were  being  ruined 
desired  to  reestablish  the  "  good  old  days  "  when  large  scale 
industry  was  unknown.     In  particular  there  was  a  continu- 

1  R.  Finck,  op.  cit.,  p.  24. 


52  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [52 

ous  demand  among  the  artisans  for  a  re-establishment  of 
the  gild  system. 

The  gild  system  would  rather  naturally  appeal  to  the 
German  workers  of  that  day.  While  the  gild  system  as  a 
whole  had  been  dead  for  many  years,  the  legal  basis  for  gild 
regulation  had  been  abolished  within  the  memory  of  many 
of  the  older  men  then  living,  as  part  of  the  Stein-Harden- 
berg  reforms  of  1808.  And  among  the  old  gild  rules  were 
many  regulations  which  would  have  hit  the  new  factory 
owners  hard.  Among  such  regulations  had  been :  (i)  The 
requirement  that  a  man  serve  a  long  apprenticeship  and 
then  serve  several  years  more  as  a  journey-man  or  wage- 
earner  before  he  might  set  up  for  himself  as  a  master  or 
employer.  (2)  The  requirement  that  a  man  pass  an  ex- 
amination in  his  trade  before  he  could  set  up  in  business  for 
himself.  This  examination  required  among  other  things 
that  he  make  a  master-piece  of  the  trade-product  with  his 
own  hands.  (3)  The  limitation  of  the  number  of  appren- 
tices who  might  serve  one  master  or  employer.  (And  the 
employee  was  an  apprentice  in  many  trades  until  he  had 
worked  at  it  for  seven  years.)  (4)  The  requirement  that 
the  apprentice  live  in  his  master's  house  and  eat  his  meals 
with  his  employer's  family.  The  difficulty  of  operating  a 
factory  under  such  rules  need  not  be  enlarged  upon.  1 

Among  the  more  significant  of  the  demonstrations  of  the 
master-artisans  was  the  Handworkers'  Parliament  of  July 
and  August,  1848,  in  Frankfort-am-Main.  Among  its  de- 
mands were  (i)  the  prohibition  of  workshops  owned  by 
the  state  or  by  joint  stock  companies;  (2)  the  taxation  of 
factories  with  exemption  for  handwork;  (3)  the  prohibi- 
tion of  the  employment  of  more  than  two  apprentices; 
(4)  the  prohibition  of  the  peddler's  trade.^     (In  Germany 

^  R.  Finck,  Das  Schulze-Delitzschische  Genossenschaftswesen,  p.  8. 


53]  SCHULZE-DELITZSCH  53 

as  in  the  United  States  a  century  ago  many  factory  products 
were  peddled  about  the  country,  while  relatively  few  hand- 
made products  were  peddled  in  this  fashion.) 

It  will  be  noticed  that  these  proposals  all  looked  toward 
the  re-establishment  of  the  rigid,  legally  regulated  system  of 
the  past.  It  was  no  accident  therefore  that  Schulze- 
Delitzsch.was  to  call  his  societies  the  Gilds  of  the  Future. 
He  was  working  with  a  group  of  people  whose  minds  were 
firmly  fixed  on  the  gilds  of  the  past.  In  such  an  atmosphere 
then  it  is  all  the  more  interesting  that  he  saw  so  clearly  that 
their  proposals  were  backward-looking.  In  his  Assozia- 
tionsbuch  published  in  1853  he  asks : 

"  Even  if  we  were  really  to  reintroduce  the  forms  and  the 
regulations  which  met  the  needs  of  our  ancestors  a  hundred 
years  ago,  does  any  one  seriously  believe  that  this  re-intro- 
duction of  the  old  forms  would  bring  back  with  it  also  the 
conditions   which   existed  then?"' 

It  was  undoubtedly  his  knowledge  of  English  industrial 
history  which  helped  him  to  see  this  fact.  It  was  probably 
his  strong  bias  toward  liberalism  and  Manchesterian  econ- 
omics which  made  him  look  for  it.  But  with  his  oppor- 
tunity to  know  about  English  industrial  conditions,  it  is  even 
more  interesting  to  notice  that  he  failed  to  realize  that  the 
coming  of  the  factory  system  meant  that  the  larger  portion 
of  the  independent  master  artisans  would  be  converted  into 
propertyless  wage-earners,  that  few  of  the  independent 
hand- workers  would  be  able  to  compete  against  the  factory. 
This  failure  to  appreciate  the  social  significance  of  the  in- 
dustrial revolution  was,  perhaps,  due  in  part  at  least  to  the 
very  excellence  of  his  education  along  some  lines.  He^ 
knew  the  work  of  the  English  building  societies,  and  in  these 

*  H.    Schulze-Delitzsch,   Assoziationshuch   fiir   deutsche   Handwerker 
und  Arbeiter,  p.  50,  quoted  by  !R.  Finck,  op.  cit.,  p.  14. 


54  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [54 

building  societies  there  seems  to  have  been  contained  a  fair 
proportion  of  those  master-artisans  who  had  managed  to 
survive  the  Industrial  Revolution  in  England. 

As  it  had  been  in  England,  so  now  in  Germany  it  was 
just  this  class  of  hand- workers  who  were  in  distress,  and  it 
was  primarily  this  class,  the  hand-workers,  whom  Schulze- 
Delitzsch  sought  to  benefit.  Finck  says  of  him  that  he 
was 

firmly  convinced  of  the  capacity  of  handwork  to  survive  and 
of  its  right  to  exist  in  the  future  in  so  far  as  the  master- 
artisan  would  himself  show  this  capacity  through  his  own 
industry.  But  never  did  he  wish  to  see  this  survival  brought 
about,  as  the  hand-worker's  own  representatives  desired, 
through  legal  protection  from  the  competition  of  a  factory 
system  which  was  proving  itself  to  be  the  superior,  but  rather 
he  wished  to  see  this  survival  attained  by  the  ability  of  hand 
work  to  meet  this  competition.^ 

To  Schulze-Delitzsch's  mind  the  advantages  of  the  factory 
owners  lay  chiefly  in  their  possession  of  capital  and  credit. 
The  remedy  therefore  would  lie  in  securing  credit.  "  In- 
stead of  complaining  about  the  encroachments  of  the  factory 
system  and  of  commerce,  or  the  excessive  power  of  capital, 
people  ought  rather  themselves  to  seize  upon  the  advantages 
of  factory  and  of  mercantile  methods,  and  to  make  capital 
useful  to  themselves.  If  you  only  will  try,  you  can  do  it."  ^ 
By  means  of  short-term  commercial  credit  he  hoped  to  make 
the  hand- worker  able  to  compete  with  the  factory!  But 
in  his  belief  in  this  possibility  Schulze  did  not  stand  alone. 
In  the  Germany  of  1850  the  advantages  of  large-scale  pro- 
duction were  but  little  understood.  Nor  was  he  alone  in 
his  belief  that  cooperation  among  the  hand-workers  would 

1  Finck,  op.  cit.,  p.  15. 

2  Schulze- Delitzsch,  Assoziationshuch,  quoted  by  R.  Finck,  op.  cit.,  p.  16. 


55]  SCHULZE-DELITZSCH  55 

solve  the  problem.     Many,  besides  Huber,  shared  this  be- 
lief. 

Schulze's  great  contribution  to  this  period  was  not  at 
all  the  idea  of  cooperation  or  even  of  cooperative  banking. 
Those  ideas  were  already  in  the  air.  Cooperative  organ- 
izations existed  in  all  parts  of  Germany,  while  in  Berlin  alone 
there  were  by  1850  no  less  than  115  cooperative  loan 
societies  of  one  kind  or  another.^  But  these  organizations 
had  not  been  very  successful.  Their  numerous  failures 
had  disgusted  everybody.^  ScHulze-Delitzsch's  great  con- 
tribution was  that  of  taking  their  ideal  and  making  it 
practical.  And  his  first  contribution  toward  making  it  a 
practical,  effective  institution  was  the  development  of  the 
six  principles  on  which  he  started  his  reorganized  loan  society 
in  DeHtzsch:*  namely — ^(i)  the  exclusion  of  charity  and 
patronage;  (2)  the  joint  liability  of  all  members  for  the 
association's  debts;  (3)  borrowing  on  the  basis  of  this  joint 
liability;  (4)  lending  the  capital  only  to  those  who  could 
repay;  (5)  regular  contributions  by  members  toward  the 
capital;  (6)  a  broad  membership. 

1  R.  Finck,  op.  cit.,  p.  12. 
*  Ibid.,  p.  13. 

8  Criiger  in  his  Grundriss  des  deutschen  Genossenschaftswesens  gives 
1853  as  the  date  of  this  reorganization  but  without  citing  authority. 


CHAPTER  V 
Schulze-Delitzsch  :  His  Thirty  Years  of  Leadership 

Schulze-Delitzsch's  activity  as  a  political  leader  would 
necessarily,  in  any  well-ibalanced  account  of  his  life,  play 
also  a  leading  role.  His  popular  importance  as  a  political 
leader  was  greater  than  his  importance  as  the  inventor  of  a 
new  type  of  cooperative  syndicate.  To  understand  his  life, 
then,  it  is  necessary  to  understand  the  political  life  of  his 
times.  Even  for  our  more  restricted  purpose,  which  is 
merely  to  review  the  history  of  a  type  of  banking,  it  seems 
worth  while  to  glance  at  the  general  political  situation  in. 
Germany,  because  that  situation  not  only  affected  Schulze- 
Delitzsch  and  through  him  his  organizations,  but  it  affected 
these  societies  very  powerfully  in  a  more  direct  fashion. 

With  the  downfall  of  Napoleon  and  the  Congress  of 
Vienna  (1815),  Germany,  or  rather  the  various  German 
states,  had  been  handed  back  to  their  multiplicity  of  prince- 
lings as  thirty-eight  separate  sovereignties.  The  princes  of 
these  various  states  were  then  loosely  united  in  a  German 
Diet,  presided  over  by  the  Emperor  of  Austria. 

Of  national  unity,  popular  government  or  liberal  institu- 
tions there  was  scarcely  a  trace — save  in  the  hopes  of  the 
radicals.  In  the  course  of  the  next  half -century  sentiment 
in  favor  of  all  three  of  these  ideals  spread,  but  there  were 
few  milestones  to  mark  positive  achievement  in  any  one 
of  the  three  directions.  The  year  1830,  so  fruitful  of  revolu- 
tion and  progress  in  other  lands,  produced  in  the  Germanics 
some  progress,  especially  in  the  smaller  states ;  but  the  larger 
56  [56 


27]  SCHULZE-DELITZSCH  57 

ones  remained  undisturbed.  A  slight  step  in  advance  was 
made  by  the  creation  of  the  German  Zollverein  in  1834,  but 
the  various  German  governments  were  still  for  the  most 
part  autocratic,  particularistic,  reactionary  and  illiberal. 
Even  the  revolutionary  year,  1848,  though  it  called  forth  a 
great  expression  of  popular  aspiration,  was,  as  we  have  seen, 
substantially  barren  of  result.  With  the  failure  of  this 
effort  there  came  a  period  of  intense  reaction  which  lasted 
until  the  regency  (1858)  or  accession  (1861)  of  William 
I.  It  must  not  be  implied  from  this  that  the  new  king  was 
by  any  means  a  liberal.  He  was  merely  more  intelligently 
autocratic.  He  was  able  enough  to  control  his  own  bureau- 
cracy and  to  appoint  a  more  gifted  set  of  ministers. 

The  two  great  problems  of  Germany  in  1850  were  popular 
government  and  national  unity.  In  Prussia  the  immediate 
political  struggle  centred  in  the  efforts  of  the  king  to  build 
up  an  army  with  which,  as  afterward  appeared,  he  was  to 
secure  a  German  unity.  Opposed  to  this  were  all  those  who 
felt  that  not  even  national  unity  was  worth  the  cost  of  its 
achievement  in  this  fashion,  and  all  those  who  felt  that  a 
great  standing  army  was  a  menace  to  popular  government. 
To  this  latter  party  Schulze-Delitzsch  belonged.  It  was 
this  group  of  determined  Progressists  who  blocked  the  army 
appropriations  and  whose  opposition  caused  the  king  in 
1862  to  summon  Otto  von  Bismarck  from  Paris  to 
"  tame"  his  parliament.  Bismarck's  failure  to  change  their 
position  was  followed  (1863)  by  his  illegal  assessment  and 
collection  of  taxes  despite  parliament.  This  in  turn  was 
followed  by  the  war  upon  Denmark  (1864) ,  the  quarrel  with 
Austria  over  the  division  of  the  spoils  (1865),  and  the 
Seven  Weeks  War  with  Austria  ( 1866) .  With  the  prestige 
of  these  victories  and  by  an  apparent  conversion  to  more 
liberal  ideals,  Bismarck  was  now  able  to  secure  from 
Parliament  immunity  for  his  illegal  action  and  also  the  vote 


58  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [58 

of  the  desired  taxes.  He  was  furthermore  able  to  push 
through  the  creation  of  the  North  German  Confederation 
which  was  later  to  aid  him  in  the  war  of  1870  against 
France,  from  which  resulted  the  creation  of  the  German 
Empire  in  1871. 

The  life  of  Schulze-Delitzsch  (1808-1883)  just  overlaps 
these  eventful  years,  and  before  continuing  his  story  it  may 
be  profitable  to  review  what  he  has  already  done.  His 
childhood  and  youth  just  covered  the  period  of  most  intense 
reaction.  The  end  of  the  ''Era  of  Metternich "  (1830)' 
was  marked  for  Schulze  by  his  first  examination  in  law  and 
his  appointment  as  Auskultat^r  or  apprentice-lawyer.  1833 
marked  his  passage  of  the  second  examination  and  his  ap- 
pointment as  Refer endar  or  apprentice- judge.  1835  was 
the  date  of  his  father's  sickness  and  the  beginning  of  his 
service  as  deputy  Patrimonial  Richter.  His  third  examina- 
tion and  the  appointment  as  junior  judge  without  pay  fol- 
lowed in  1838.  In  1840  he  was  summoned  to  act  as  deputy 
for  Judge  Hildebrandt,  and  was  appointed  to  the  latter's 
place  in  1841.  During  the  first  five  years  of  his  tenure  of 
office  there  was  little  of  note  beyond  his  travels  and  his 
organization  of  the  chorus.  This  period  of  his  life,  the 
thirty-eight  years  up  to  1846,  may  be  called  Schulze' s  period 
of  preparation. 

Schulze's  public  life  may  be  said  to  begin  with  the  year 
1846.  From  this  time  until  his  death  thirty-seven  years 
later  his  activity  was  marvellous.  Only  two  of  these  thirty 
seven  years  passed  unmarked  by  the  completion  of  at  least 
one  task  of  real  public  importance ;  though  the  achievements 
of  the  first  few  years,  it  must  be  admitted,  were  of  a  much 
lower  order  than  his  later  service.  The  first  of  these  earlier 
years  (1846)  was  marked  by  the  crop  failure  and  his  effec- 
tive organization  of  local  charitable  efforts.  In  the  year 
following   (1847)   Delitzsch  was  kept  free  from  the  riots 


39]  SCHULZE-DELITZSCH  59 

and  mob  violence  which  marked  many  neighboring  com- 
munities. The  revolution  of  1848  was  followed  by  the 
summoning  of  the  Prussian  Diet  and  Schulze's  election  as 
deputy.  His  exciting  career  in  Berlin  has  already  been 
recounted.  In  the  following  year  he  lost  his  post  as  Patri- 
monial Richter  but  served  again  as  a  representative  in  the 
Prussian  Diet.  In  this  year  (1849)  ^l^o  he  organized  his 
first  cooperatives,  the  friendly  and  purchasing  societies. 
In  the  following  year  (1850)  came  his  trial  for  incitement 
to  riot,  his  acquittal,  his  organization  of  his  first  loan 
association,  the  publication  of  his  first  book,  his  assign- 
ment to  Wreschen  and  his  marriage.  The  next  year  in 
turn  (1851)  was  marked  by  the  birth  of  his  first  son,  by 
his  settlement  of  the  long-fought  law  suit,  his  vacation  in 
Delitzsch,  his  fight  with  the  ministry  of  justice  and  his 
return  to  Delitzsch,  a  man  of  forty-three  without  a  job 
and  without  prospects.  In  the  following  spring  came 
his  reorganization  of  the  wreck  of  his  loan  society  in 
Delitzsch.  But  with  the  reorganization  of  this  society 
Schulze-Delitzsch  may  be  said  to  have  entered  upon  the 
broad  avenue  of  his  constructive  public  service.  The  years 
from  1846  to  1852  marked  the  period  of  his  experimenta- 
tion. During  this  time  he  was  still  the  young-man-in-a-hurry. 
His  early  cooperatives  and  his  violently  democratic  position 
in  the  House  of  Representatives  were  both  the  products  of 
a  desire  to  get  results  promptly.  From  this  time  forth 
Schulze-Delitzsch  dealt  in  movements  that  would  slowly 
unfold  to  their  full  development.  He  has  now  become 
content  to  do  a  work  of  slow  achievement  and  of  educa- 
tion. 

There  is  a  pathetic  touch  in  the  fact  that  November,  1852, 
when  Schulze-Delitzsch  was  still  trying  to  start  life  over 
again  after  his  stormy  departure  from  the  government 
service,  was  the  month  in  which  his  father,  the  elder  Schulze, 


6o  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [60 

celebrated  the  completion  of  his  fiftieth  year  in  public  office. 
The  son's  speech  on  this  occasion  showed  plainly  the  dis- 
appointment which  both  he  and  his  father  felt,  at  the  fact 
that  the  magistracy,  so  long  a  family  possession,  was  about 
to  fall  into  other  hands/  The  son  was  even  tempted  into 
taking  the  occasion  of  this  celebration  as  an  opportunity  to 
defend  himself  before  his  father's  friends.  In  his  speech 
he  pointed  out  that  his  family  had  always  been  citizens  first 
of  all.  They  had  also  been  magistrates  only  so  long  as  it 
was  consonant  with  their  duty  as  citizens.  But  for  all  his 
father's  blessing  and  his  brave  words,  the  situation  must 
have  been  a  bit  embarrassing  for  Schulze-Delitzsch.  Even 
if  it  did  happen  to  be  known  to  his  father's  friends,  his 
reorganization  of  an  unsuccessful  society  among  a  group 
of  men  who  were  comparatively  unknown  even  in  their 
home  town,  was  scarcely  an  achievement  of  such  magnitude 
that  he  could  then  point  to  it  with  pride.  The  celebration 
for  both  Schulze-Delitzsch  and  his  father  must  have  been 
much  tempered  with  sadness. 

In  the  spring  of  the  following  year  (1853)  however,^ 
things  began  to  improve  a  little  for  the  family.  Schulze- 
Delitzsch  found  a  briefless  barrister  with  whom  he  entered 
into  a  working  partnership,  by  which  the  barrister  handled 
the  court  work  while  Schulze-Delitzsch  prepared  the  papers. 
Later  several  other  barristers  offered  him  their  work  of  this 
kind  and  a  certain  amount  of  trustee  business  came  to  him 
also.  Thus  by  the  time  his  second  son  was  born,  his  income 
from  private  work  was  as  large  as  his  salary  as  judge.  But 
unlike  his  salary  it  continued  to  grow  until  the  time,  several 
years  later,  when  he  was  again  called  into  public  life.' 

In  the  same  year  in  which  he  thus  solved  the  problem  of 

1  Dr.  A.  Bernstein,  Schulze-Delitzsch,  Leben  und  Wirken,  pp.  90  et  seq. 

2  A.  Bernstein,  op.  cit.,  pp.  89  et  seq. 


6i]  SCHULZE-DELITZSCH  6l 

supporting  his  family  (1853),  he  gave  evidence  that  the 
two  preceding  winters  had  not  been  wasted,  for  Ernst  Keyl 
in  Leipzig  brought  out  Schulze-DeUtzsch's  second  book.^ 
This  was  entitled  Assoziationshuch  fur  deutsche  Hand- 
werker  und  Arbeiter.^  This  book  contained  a  descrip- 
tion of  his  own  work  in  Delitzsch  and  an  account  of  the 
cooperative  systems  which  existed  in  France  and  England. 
Then  the  author  pointed  out  the  advantages  which  such 
unions  could  give  to  their  members  in  many  cases.  To  this 
he  added  a  classification  of  the  various  kinds  of  cooperation 
then  in  existence,  reducing  them  finally  to  two  fundamental 
types,  with  various  sub-classes.  These  fundamental  types 
he  then  classified  according  to  the  difficulties  involved  in 
establishing  them  under  modern  conditions.^ 

The  lowest  grade  of  cooperative  organization,  Schulze 
thought,  consisted  of  cooperative  stores  and  of  the  coopera- 
tive credit  societies.  The  latter  would  be  relatively  easy  to 
establish  because  the  small  tradesmen  and  artisans  were 
in  such  desperate  need  for  capital,  in  order  to  compete  with 
large-scale  business  and  to  free  themselves  from  their  de- 
pendence on  the  sellers  of  raw  material.  Such  a  society 
should  be  open  not  only  to  small  business  men  but  to  all 
poor  people  living  in  a  town  who  were  similarly  in  need 
of  credit.  These  organizations,  maintained  only  because  of 
the  pressure  of  immediate  need,  would  nevertheless  in  time 
educate  their  members  in  cooperative  activities  and  prepare 
them  for  organizations  of  the  second  type. 

The    second   grade    was    defined   as    *'  x\ssociations    for 

*C/.  Bernstein,  op.  cit.,  pp.  loi  flf. 

2  H.  Schulze-Delitzsch,  Assosiationsbuch  fiir  deutsche  Handwerker  und 
Arbeiter  (Leipzig,  1853). 

3  Cf.  also  criticism  of  book  by  R.  Finck,  op.  cit.,  p.  17  ff.,  but  especially 
M.  Fassbender,  F.  W.  Raiffeisen  in  seinem  Leben,  Denken  und  Wirken 
(Berlin,  1902),  p.  120  et  seq. 


^2  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [62 

Special  Tasks  ".  Among  such  purposes  were  to  be  included 
organizations  for  purchasing  raw  material,  societies  for  the 
joint  ownership  of  machines  or  workshops,  warehousing 
associations  and  marketing  organizations.  These  were  alike 
in  that  they  provided  the  prerequisites  of  production.  In 
turn  they  were  to  educate  their  members  for  a  still  higher 
and  more  difficult  type  of  cooperation. 

The  crowning  type  of  cooperation  was  to  be  found  in  the 
associations  to  carry  on  an  industry  for  the  common  account, 
i.  e.  the  cooperative  factory.  In  this  were  to  be  realized  all 
the  advantages  of  cooperation — cheap  credit,  modern 
machinery,  wholesale  prices  in  purchasing  materials  and 
large-scale  organization  for  sale.  In  these  were  to  be  united 
the  business  man,  the  laborer  and  the  artisan.  He  then 
carefully  and  clearly  stated  the  practical  difficulties  which 
made  the  successful  operation  of  such  societies  impossible 
at  present,  but  offered  his  belief  that  in  organizations  of 
this  type  was  to  be  found  the  goal  of  the  whole  movement. 

Such  near-socialist  or  at  least  collectivist  views  seem 
strange  when  expressed  by  a  man  who  regarded  competition 
as  the  great  regulator  of  economic  life.  And  it  must  be  re- 
membered that  Schulze-Delitzsch  never  lost  his  admiration 
for  the  competitive  system  nor  his  love  for  the  regime  of 
industrial  freedom  which  was  then  best  exemplified  in  Eng- 
land. But  neither  did  he  lose  hope  that  his  system  of 
credit  societies  would  lead  to  others  of  the  next  higher 
rank.  His  work  had  started  with  cooperative  purchasing 
and  this  aspect  of  the  movement  long  aroused  in  him  a 
sj)ecial  enthusiasm.  Only  the  progress  of  German  economic 
life  away  from  this  goal,  a  progress  which  became  unmis- 
takable during  the  great  boom  of  the  early  seventies,  finally 
caused  him  definitely  to  give  up  his  hopes  in  this  direction. 

In  the  mean  time  the  publication  of  this  work  gained  for 
its  author  the  suspicion,  if  not  the  dislike,  of  the  capitalists 


53]  SCHULZE-DEUTZSCH  63 

and  large  business  men.  Few  men  have  made  a  more  rapid 
collection  of  enemies  than  did  Schulze-Delitzsch.  He  was 
now  hated  by  the  autocracy,  distrusted  by  the  conservatives 
as  a  revolutionist,  and  finally  also  suspected  as  a  near 
socialist,  at  least  in  so  far  as  he  was  known,  by  the 
capitalists  who  formed  the  back-bone  of  the  resistance  to 
the  autocracy  and  to  the  land-holding  conservatives.  Nor  was 
he  yet  through  with  his  collection  of  foes.  But  this  seems 
to  have  disturbed  him  little.  He  fought  with  the  abound- 
ing energy  and  apparently  the  vigorous  enjoyment  of  a 
Theodore  Roosevelt,  and  his  enemies  at  least  did  something 
to  advertise  him. 

During  the  next  five  years  his  method  of  earning  a  living 
left  him  still  with  considerable  leisure.  Therefore  it  was 
possible  for  him  to  travel  about,  at  least  to  the  nearer  towns, 
and  to  explain  his  views  on  cooperation.  Thus  there  soon 
began  to  be  a  very  considerable  number  of  societies  erected 
after  the  model  of  the  organization  in  Delitzsch.  Con- 
spicuous among  these  were  the  banks  in  Eisleben,  Halle, 
Leipzig,  Meissen,  Braunschweig,  Wolfenbiittel  and  Celle. 
Schulze-Delitzsch  was  a  born  propagandist  as  well  as  a 
fighter. 

By  1854  the  movement  had  got  so  far  advanced,  at  least 
in  Schulze-Delitzsch's  own  mind,  that  he  felt  the  need  of  a 
special  organ  through  which  to  express  his  views.  This 
he  found  through  the  cooperation  of  G.  Wieck,  owner  and 
editor  of  the  Deutsche  Gewerbe  Zeitung,  who  offered 
him  space  in  that  journal.  Then  for  six  years,  from  1854 
to  1 861,  acting  as  an  editor  without  pay,  he  prepared  re- 
gularly for  this  periodical  a  special  section  which  bore  the 
title  ''Die  Innung  der  Zukunft",  "The  Gild  of  the 
Future  '\  In  this  section  he  not  only  explained  his  views, 
but  began  also  to  report  the  condition  of  the  banks  which 
were  organized  on  his  plan.     Thus  he  began  in  1854  the 


64  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [64 

series  of  reports  whose  excellence  has  formed  one  of  the 
remarkable  features  of  his  portion  of  the  cooperative  move- 
ment. 

By  the  following  year  the  success  of  his  cooperative  socie- 
ties began  to  attract  for  him  the  favorable  attention  of 
those  men,  who  had  with  him  been  interested  in  the  success 
of  the  Democratic  party  back  in  the  days  of  1848,  when 
democratic  government  had  seemed  a  possibility.  Here 
was  a  promising  social  reform  movement  led  by  one  who 
was  not  only  independent  of  the  government,  but  was  even 
hostile  to  that  autocracy  which  they  hated.  Schulze- 
Delitzsch  began  to  be  a  political  figure.  But  just  as  the 
success  of  his  people's  banks  gave  him  political  prestige 
with  the  Democrats,  so  his  political  position  as  a  prominent 
Democrat  called  the  attention  of  the  government  to  his 
organizations.  In  1855  the  Prussian  Minister  of  West- 
phalia ordered  all  new  banks  of  this  type  to  secure  a  permit 
or  license  from  the  authorities  and  to  agree  to  give  these 
authorities  the  power  to  revise  their  by-laws,  supervise 
their  management,  and  to  dissolve  them  if  they  desired. 

This  demand  of  the  Westphalian  ministry  was  based  on 
a  statute  of  1851  which  subjected  to  such  supervision 
friendly  societies  of  practically  all  kinds  (except  the  local 
dividing  clubs).  If  securing  the  license  had  been  merely 
a  formal  process,  perhaps  no  objection  would  have  been 
aroused.  But  the  officials  showed  promptly  that  it  was 
not.  They  refused  a  license  to  the  society  in  Osterfeld  on 
the  ground  that  there  was  no  need  for  such  an  organization 
there.  And  a  license  was  refused  the  Prenzlau  bank  on  the 
ground  that  the  interest  rates  were  usurious.^  Evidently 
the  officials  intended  to  block  the  movement's  growth. 
Thus  the  matter  had  to  be  taken  up  in  court.     A  judicial 


1  R.  Finck,  op.  cit.j  p.  83  et  seq. 


65]  SCHULZE-DELITZSCH  65 

decision  was  secured  which  classified  the  peoples'  banks 
with  private  companies  rather  than  with  friendly  societies, 
and  the  ministry  was  compelled  to  withdraw  its  order. 

Even  after  this  legal  'battle  was  over,  the  bureaucracy 
tried  for  a  long  time  to  subject  the  ''  general  assemblies  " 
of  the  banks'  members  to  police  supervision  on  the  ground 
that  they  were  "  public  meetings ".  In  Hanover  this 
police  supervision  was  so  strict  that  the  people's  banks  in 
that  kingdom  were  soon  tempted  to  dissolve.  But  in 
Saxony  the  authorities  were  more  tolerant,  and  in  the 
Electorate  of  Hesse  the  authorities  even  went  to  the  extent 
of  encouraging  the  organization  of  people's  banks.  But  it 
was  only  in  these  smaller  states  that  such  liberalism  could 
be  found.  In  the  larger  kingdoms  the  official  attitude  re- 
mained hostile. 

These  legal  problems  seem  to  have  occupied  most  of  the 
time  Schulze-Delitzsch  could  spare  from  the  task  of  sup- 
porting his  family  and  editing  his  supplement  during  the 
years  1855,  1856,  and  1857.  But  the  last  of  these  three 
years  was  marked  by  two  other  events.  In  1857  he  secured 
the  assistance  of  the  only  other  great  German  authority  on 
cooperation,  Victor  Aime  Huber;  and  for  the  next  few^ 
years  Huber  contributed  regularly  to  the  "  Gild  of  the 
Future  ".  This  assistance  from  Huber  was  important,  not 
solely  because  it  brought  to  the  little  supplement  another 
able  writer,  but  also  because  of  Huber's  political  position. 
Huber,  it  will  be  remembered,  was  something  of  a  royal  pro- 
tege, and  was  certainly  one  of  the  leaders  of  the  Conserva- 
tive Party  in  Prussia.  His  cooperation  was  particularly 
fortunate  for  Schulze-Delitzsch  because  the  former's  absorp- 
tion in  the  ethical  problems  of  cooperation  and  his  indiffer- 
ence to  the  practical  detail  left  Schulze-Delitzsch  without  op- 
position in  the  practical  development  of  his  organizations  at 
the  same  time  that  it  gave  to  them  something  of  the  standing 


66  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [66 

with  a  reactionary  bureaucracy  which  the  people's  banks 
then  so  sorely  needed. 

The  autumn  of  this  year  (1857)  ^^s  further  marked 
by  the  first  public  recognition  of  his  work.  This  came  in 
the  form  of  an  invitation  to  address  the  Congres  inter- 
national de  hienfaisance.  In  the  lecture  before  this  con- 
gress on  charity  Schulze-Delitzsch  seems  for  the  first  time 
to  have  tried  to  get  together  into  comprehensive  tables  the 
various  figures  which  were  now  available  with  regard  to 
the  people's  banks/  But  eager  as  Schulze-Delitzsch  was 
to  secure  backing  for  his  movement,  he  recognized  that  a 
conference  on  charity  could  not  give  him  the  kind  of  back- 
ing he  needed.  His  movement  was  not  one  of  charity,  but 
of  self-help. 

The  year  1858  was  largely  spent  then  in  trying  to  create 
a  special  body  which  would  interest  itself  in  movements 
like  his  own,  which  were  self-supporting.  For  this  pur- 
pose he  first  called  a  meeting  in  the  Hotel  Zandsberg  at 
which  such  an  organization  was  planned,  and  Dr.  Bohmert 
and  himself  were  appointed  to  make  the  arrangements. 
This  year  he  also  published  his  third  book,  which  was  en- 
titled The  Working  Class  and  Cooperation.^  This 
volume  was  chiefly  important  because  in  it  he  presented, 
with  some  additions,  the  statistics  he  had  prepared  for  the 
International  Conference  on  Charity.  In  it  also  he  ex- 
plains his  program  for  the  new  body.  As  a  result  of  this 
activity  there  was  held  in  Gotha,  on  the  twentieth  of  Sep- 
tember, 1858,  the  first  meeting  of  the  "  Congress  of  Ger- 
man Economists  '*,  an  organization  which  has  now  had  a 
useful  existence  for  more  than  half  a  century.     At  this  first 

*A.  Bernstein,  op.  cit.,  p.  105. 

^Die  arbeitenden  Klassen  und  des  Assoziationswesen  in  Deutschland 
als  Programm  zu  einem  deutschen  Kongress,  by  Hermann  Schulze- 
Delitzsch,  published  by  G.  Mayer  (Leipzig,  1858). 


6y]  SCHULZE-DELITZSCH  6/ 

meeting  there  was  naturally  a  special  session  devoted  to 
cooperation,  although  the  chief  topic  of  discussion  for  the 
meeting  was  protection  or  free  trade. ^  This  year  also 
brought  one  more  change  which  was  destined  on  the  whole 
to  be  favorable  to  the  new  movement.  The  insanity  of  the 
Prussian  monarch  caused  the  appointment  as  regent  of 
Prince  Wilhelm,  later  William  I  of  Germany.  This  change 
caused  in  the  course  of  time  a  reactionary  bureaucracy  to 
be  replaced  by  an  intelligent  autocracy.  The  autocracy 
in  the  course  of  time  gave  a  little  more  freedom  to  the  new 
movement. 

In  the  following  year  (1859)  the  Congress  of  German 
Economists  again  showed  its  interest  in  the  Schulze-^ 
Delitzsch  movement  by  discussing  the  various  aspects  of  the 
cooperative  form.  And  they  made  one  really  valuable  con- 
tribution to  the  movement  by  christening  the  societies  with 
a  new  name.  Up  to  this  time  the  peoples'  banks  and  pur- 
chasing societies  had  been  known  by  various  different 
names,  such  as  '*  association  ",  "  union,"  and  **  company  ", 
the  most  common  being  "  association  ".  But  each  of  these 
words  was  used  in  other  connections  also.  This  congress 
now  revived  the  word  Genossenschaft  and  recommended 
that  it  be  applied  to  these  organizations  whose  common 
quality  was  that  they  were  self-supporting  institutions  de- 
signed to  forward  the  economic  life  of  their  members.* 
Only  at  a  later  time  was  the  deiftnition  further  restricted. 
But  the  movement  from  this  time  on  had  the  advantage  of  a 
distinctive  name.  Genossenschaft  is  ordinarily  trans- 
lated by  the  English  word  "  syndicate  ",  but  the  translation 
is  very  poor.  The  cooperative  societies  in  English-speaking 
countries  are  now  in  the  same  situation  that  the  German 

^  M.  Fassbender,  op.  cit.,  p.  129. 
2  M.  Fassbender,  op.  cit.,  p.  130. 


68  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [68 

organizations  were  in  before  1859- 1867,  The  more  highly 
developed  have  no  distinctive  word  which  marks  them  off 
sharply  from  other  forms  of  organization.  In  the  absence 
of  such  an  English  word  Genossenschaft  can  not  be  trans- 
lated. 

But  Schulze-Delitzsch  was  passing  through  the  same  de- 
velopment with  regard  to  the  organization  and  advertising! 
of  his  movement  which  had  been  traversed  in  the  organiza- 
tion of  the  bank  itself.  Started  with  patronage  and  help 
from  the  outside,  it  developed  into  a  purely  self-supporting 
organization.  Now  that  the  German  economists  were  in- 
terested, Schulze-Delitzsch  became  ready  to  create  an  inde- 
pendent organization  of  his  societies.  But  first  he  took  one 
hint  from  his  patrons.  The  economists  had  been  as  in- 
terested in  the  cooperative  stores  and  the  purchasing  socie- 
ties as  in  the  banks.  Thus  in  the  year  1859  Schulze- 
Delitzsch  began  to  report  the  condition  of  all  his  societies 
instead  of  just  the  peoples'  banks.  With  the  publicity  which 
the  organizations  had  gained  through  the  discussions  of  the 
economists,  Westerman,  the  editor  of  a  monthly  entitled 
Unsere  Tage,  became  interested;  and  the  business  statis- 
tics for  the  preceding  year  (1858)  were  thus  published  in 
that  magazine.  In  this  fashion  they  reached  a  wide  circle 
of  readers. 

This  year  (1859)  Schulze-Delitzsch  invited  the  unions 
to  meet  in  Dresden  for  the  sake  of  "  discussing  the  institu- 
tions existing  in  the  various  unions  and  the  experiences  they 
have  had  and  an  understanding  concerning^  the  interests 
which  should  l^e  pursued  in  common".  But  a  meeting  of 
this  kind  was  as  welcome  in  Dresden  as  a  strike  meeting 
would  be  in  an  American  chamber  of  commerce.  The  King- 
dom of  Saxony  prohibited  the  assembly.  Luckily  the  ever- 
liberal  petty  state  of  Weimar  was  not  far  distant  and  the 
meeting  was  held  there  June  14-16,    1859.     This  formed 


69]  SCHULZE-DELITZSCH  69 

the  first  of  the  great  annual  meetings  of  the  Schulze- 
Delitzsch  cooperative  societies  which  have  now  occurred, 
except  in  time  of  war,  for  more  than  half  a  century. 
Twenty-eight  unions  in  various  German  states,  including 
one  union  in  Austria,  sent  their  delegates  to  Weimar,  and 
here  it  was  decided  to  create  a  central  office  or  secretariat 
whose  purpose  was  "  to  clear  the  way  for  business  connec- 
tions between  the  imions,  for  the  exchange  of  mutual  ex- 
perience and  an  understanding  about  the  common  purposes  ". 
Very  naturally  Schulze-Delitzsch  was  chosen  to  take  charge 
of  this  office,  and  it  was  planned  to  make  the  office  a  salaried 
position.  Thus  for  the  first  time  he  was  to  be  paid 
for  the  valuable  work  he  had  so  long  done  for  the  move- 
ment. Before  the  end  of  the  year  thirty-two  organiza- 
tions had  joined  this  central  bureau.^  This  was,  it  must 
be  admitted,  a  small  proportion  of  the  two  hundred  or 
more  cooperatives  already  in  existence.  There  have  prob- 
ably always  been  more  cooperatives  outside  his  organiza- 
tion than  within  it,  but  these  thirty-two  formed  a  safe  begin-^ 
ning. 

No  sooner  was  the  organization  of  his  secretariat  achieved,, 
than  his  public  spirit  and  his  genuine  talent  for  organiza- 
tion led  Schulze-Delitzsch  off  into  a  new  field.  The  months, 
from  April  to  July,  1859,  were  the  period  of  the  war  be- 
tween Austria  on  the  one  side,  and  France  and  Sardinia  on- 
the  other,  over  the  question  of  Italian  unification.  The 
spectacle  of  a  neighboring  nation  making  actual  progress  in^ 
the  direction  of  political  unity  revived  in  many  Germans  the 
hopes  they  had  so  fondly  held  in  1848  of  a  real  German 
nation.  Furthermore  the  apparent  weakness  of  Austria 
seemed  for  a  moment  to  make  some  achievement  possible. 
During  this  war  there  happened  to  be  a  preliminary  meet- 

■^    M    ^  R.  Finck,  op.  cit.,  p.  60.  : 


^O  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [70 

ing  of  some  of  the  officers  of  cooperative  societies  in  Weimar. 
On  Whitsunday,  after  the  regular  cooperative  meeting  was 
over,  Schulze-Delitzsch  talked  the  situation  over  with  two 
of  his  friends,  attorneys  who  had  been  present  at  the  earlier 
meeting.  The  three  agreed  that  in  view  of  the  regency  and 
of  the  ItaHan  war,  this  would  be  a  good  time  to  start  again 
an  agitation  for  national  unity,  and  for  this  purpose  they 
united  in  a  call  for  an  *'  Assembly  of  German  Patriots  "/ 

In  response  to  this  call  a  second  meeting  was  held  at 
Eisenach  in  July  of  this  same  year  (1859) .  At  this  assembly 
there  were  thirty  people  present,  chiefly  from  the  states  of 
central  Germany.  Schulze-Delitzsch  was  the  sole  member 
from  the  great  Kingdom  of  Prussia.  But,  nowise  dis- 
couraged, these  thirty  voted  to  hold  later  in  that  same 
simimer  a  second  assembly  in  Eisenach.  This  meeting  was 
still  slimly  attended  but,  still  undaunted,  they  issued  a  pro- 
clamation calling  a  meeting  at  Frankfort  in  September  of 
the  same  year.  Frankfort  was  chosen  because  the  Econ- 
omic Congress  was  already  scheduled  to  meet  there  at  that 
time.  Some  two  hundred  men  attended  this  third  meeting. 
On  the  journey  thither  Schulze-Delitzsch  talked  over  with 
some  of  his  friends  the  wisdom  of  forming  a  permanent 
organization.  This  was  done,  Schulze-Delitzsch  serving  as 
chairman  of  the  committee  which  drafted  the  constitution. 
Coburg  was  decided  upon  as  the  central  office  of  the  organi- 
.:zation  and  von  Bennigsen  was  elected  president.  The  name 
chosen  for  this  new  organization  was  the  Nationalverein 
or  "  National  Union  ". 

During  the  remainder  of  this  winter  Schulze-Delitzsch 
seems  to  have  busied  himself  with  the  plans  for  the  organi- 
zation of  his  central  bureau  or  secretariat,  and  in  January, 
j86o,  he  published  in  the  "  Gild  of  the  Future  "  his  plans 

1  A.  Bernstein,  op.  cit.,  p.  107  et  seq. 


-ri]  SCHULZE-DELITZSCH  yi 

for  his  work  as  secretary.  Each  cooperative  society  was  to 
pay  him  two  per  cent  of  its  annual  net  profits,  subject  to 
two  restrictions.  No  society  was  to  be  expected  to  pay 
more  than  twelve  thalers  ($9),  however  large  its  earnings. 
On  the  other  hand  no  society  was  to  pay  less  than  two 
thalers  ($1.50)  no  matter  how  small  its  profits.  To 
Schulze-Delitzsch  this  seemed  like  an  overcharge  of  the 
smaller  societies,  which  he  justified  on  the  ground  that 
these  were  the  very  organizations  which  were  most  in  need  of 
counsel  and  aid.  He  then  points  out  that  pay  on  this 
basis  would  probably  bring  him  an  income  of  $150  to  $200 
which  would  not  exceed  a  third  or  a  fourth  of  the  average 
income  of  a  lawyer  in  the  Prussian  cities  of  moderate  size. 
(The  range  of  legal  incomes  is  interesting.)  Furthermore 
he  pointed  out  that  even  that  income  was  uncertain. 

In  return  for  this  chance  to  earn  two  hundred  dollars  a 
year  Schulze-Delitzsch  promised  to  devote  to  the  movement 
as  much  of  his  time  as  was  necessary  to  perform  the  fol- 
lowing tasks  : 

(i)  Representing  and  extending  the  cooperative  move- 
ment in  the  press,  at  meetings  of  the  Economic  Con- 
gress, and  in  public  life,  especially  the  protection  of 
the  interests  of  the  union  before  the  legislatures  of 
the  various  states. 

(2)  Aiding  the  movment  by  word  and  deed,  especially 
by  founding  new  societies  and  by  advising  with  re- 
gard to  current  problems. 

(3)  Acting  as  an  intermediary  between  the  various  co- 
operative societies.^ 

The  second  annual  meeting  of  the  cooperatives  was  held 
at  Gotha  in  i860.     At  this  meting  Schulze-Delitzsch  pre- 

*  Article  from  Innung  der  Zukunft  quoted  by  Bernstein,  op.  cit., 
pp.  13S-141. 


72  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [72 

sented  the  first  fruits  of  his  work  as  secretary  of  the  move- 
ment in  the  shape  of  a  bill  for  a  proposed  cooperative  law.^ 
At  this  meeting  there  was  created  at  the  secretary's  own  re- 
quest a  committee  or  board  of  directors  to  supervise  his 
work.  The  secretary  was  furthermore  instructed  so  to 
keep  track  of  the  condition  of  each  bank  that  those  which 
had  temporary  surplus  funds  could  lend  them  to  those 
banks  that  were  temporarily  in  need  of  loans.  This  greatly 
increased  the  volume  of  the  work  in  the  secretary's  office 
and  Schulze-Delitzsch  was  obliged  to  give  up  all  other  work 
and  devote  himself  to  this  office.^  The  increased  pay  for 
this  seems  to  have  come  largely  as  the  result  of  the  increas- 
ing membership  of  the  bureau.  But  these  matters  were 
now  all  regulated  by  the  convention's  "  committee  ". 

By  this  time  quite  a  few  of  the  keener  observers  werd 
beginning  to  see  the  social  significance  of  the  Schulze- 
Delitzsch  movement  with  its  mottoes,  such  as  "  Value  for 
value,  service  for  service ",  and  "  Show  yourself  worthy 
of  credit  and  we  will  enable  you  to  secure  it ",  and  two  of 
these  observers,  Huber  and  Roscher,  appreciated  the  per- 
sonal contribution  of  Schulze-Delitzsch  to  the  movement 
sufficiently  to  express  their  appreciation  of  his  work  pub- 
licly.^    But  such  praise  was  still  rare. 

In  the  mean  time  the  third  of  the  organizations  which 
Schulze-Delitzsch  had  fathered,  namely,  the  National  Union, 
was  continuing  its  work  of  education  and  of  propaganda. 
The  ministry  at  this  time  was  in  the  hands  of  the  Liberal 
Party,  and  this  party  consistently  maintained  their  opposi- 
tion to  the  Conservatives,  but  the  issue  had  changed  and 
they  did  not  show  themselves  equally  opposed  to  autocracy. 
Thus  there  began  to  be  discontent  among  the  radical  ele- 

*R.  Finck,  op.  cit.,  p.  60. 

'M.  Fassbender,  op.  cit.,  p.  130. 

•A.  Bernstein,  op.  cit.,  p.  142. 


73]  SCHULZE-DELITZSCH  73 

ments  such  as  the  remnants  of  the  Democratic  Party  of  1848 
and  the  members  of  the  newer  National  Union.  In  the 
elections  of  December,  i860,  this  element  even  secured  a 
few  seats  and  also  a  nick-name,  the  Jung-Litthauen. 

The  debates  of  the  next  year  brought  out  even  more  de- 
cisively the  fact  that  the  real  issue  before  the  country  was 
the  increase  in  the  army  and  on  this  issue  the  Liberal  Party 
was  too  uncertain  to  command  public  confidence.  In  the 
elections  of  that  year  a  number  of  the  radicals  ran  for 
office,  and  among  them  Schulze-Delitzsch.  In  the  course 
of  his  campaign  he  was  compelled  to  explain  that  he  had 
never  said  that  the  house  of  Hohenzollern  was  a  bankrupt 
absolutism  but  merely  that  absolutism  as  an  institution  was 
bankrupt.  However  he  still  maintained  vigorously  that 
absolutism  was  bankrupt;  and  largely  on  this  issue  he  was 
elected.  i 

With  this  election  of  1861  began  the  long  public  service 
of  the  cooperatives'  leader.  His  membership  in  the  Prus- 
sian House  of  Representatives  was  continuous  from  i86i| 
to  1875.  And  even  after  this  was  over,  he  served  addi- 
tional years  as  a  member  of  the  Reichstag.^  For  the  next 
few  years  the  life  of  Schulze-Delitzsch  sounds  like  a  trium- 
phal march.  But  even  as  late  as  the  opening  of  this  1861! 
session  of  the  legislature  he  was  still  a  relatively  unknown 
member  of  a  badly  outvoted  minority.  At  the  close  of  this 
session  however  this  minority  got  together  some  of  the  old 
Democrats,  some  of  the  National  Union  and  one  of  the 
more  radical  of  the  Liberal  newspaper  owners,  to  organize 
a  party  dedicated  to  "  Progress — ^toward  the  creation  of  a 
constitutional  government  and  of  a  German  confederation 
under  Prussian  leadership  ".  Thus  was  born  the  Prussian 
Progressive  Party. 

1  Schmidt,  article  on  "  Schulze-Delitzsch "  in  Handworterbuch  der 
Staatswissenschaften, 


74  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [74 

In  the  elections  which  followed  shortly  after  the  forma- 
tion of  this  party,  their  success  was  so  surprising  that  they 
could  have  contested  with  the  Liberals  for  the  leadership  of 
the  anti-iConservative  elements.  But  any  such  break  was 
prevented  by  the  king's  prompt  dissolution  of  the  house  in 
March  of  the  following  year  (1862)/ 

In  the  mean  time  Schulze-Delitzsch  had  not  neglected  his 
duties  as  leader  of  the  cooperative  movement.  The  Gild  of 
the  Future  had  been  changed  from  a  mere  supplement  of 
the  Gewerbe-Zeitung  into  an  independent  publication  ( 1861 ) . 
The  name  of  the  bureau  had  been  quietly  changed  to  "  Coun- 
sellorship  "  and  Schulze  had  assumed,  at  first  without  par- 
ticular authorization,  the  title  of  '*  Counsel  "  to  the  coopera- 
tive societies.  A  third  general  meeting  of  the  cooperative 
societies  had  been  held  in  Halle,  and  at  this  meeting  it  had 
been  decided  to  organize  subordinate  leagues  for  the  various 
parts  of  the  country  with  special  subordinate  leagues  for 
the  different  kinds  of  cooperatives. 

In  the  spring  of  the  following  year  (1862)  Schulze- 
Delitzsch  moved  his  family  from  his  old  home  in  Delitzsch 
to  Potsdam.  The  reasons  for  this  change  were  that  his 
new  work  as  Counsel  for  the  cooperatives  was  for  the  pres- 
ent at  least  primarily  political.  His  main  job  was  to 
secure  for  them  the  protection  of  a  special  statute.  The 
place  for  such  work  was  in  the  capital.  In  the  second  place 
Schulze-Delitzsch  was  absorbed  in  the  new  political  con- 
test and  wanted  to  be  near  it.  Conversely,  his  activity  as 
a  political  leader  was  beginning  to  attract  attention  to  his 
cooperative  societies.  The  fame  of  Schulze-Delitzsch  was 
growing  very  rapidly  in  these  days  when  he  was  one  of  the 
few  leaders  who  had  the  courage  to  carry  on  a  really  vigor- 
ous  warfare  against  the  policies  of  the  autocracy.  v 

*A.  Bernstein,  op.  cit.,  p.  119. 


^2]  SCHULZE-DELITZSCH  75 

The  next  annual  meeting  of  the  cooperative  societies  was 
then  held  in  the  town  of  his  adoption.  The  meeting  of  1867 
in  Potsdam  was  the  first  occasion  when  the  annual  meeting 
was  held  any  distance  from  the  narrow  circle  of  original 
societies  around  Delitzsch  in  central  Germany.  On  this 
occasion  some  of  the  Counsel's  friends  made  an  effort  to 
secure  for  him  an  increased  salary.  But  there  seemed 
danger  that  such  a  move  would  lead  to  misunderstandings 
and  it  was  finally  stopped  by  Schulze-Delitzsch  himself. 
Finally  the  autumn  of  this  year  saw  the  arrival  in  Berlin  of 
Otto  von  Bismarck  in  answer  to  the  king's  summons  to 
come  and  "  tame  "  parliament  and  popular  government. 

The  year,  1863,  then  promised  in  advance  to  be  a  stormy 
one.  It  was  even  more  exciting  than  was  expected.  Bis- 
mark  failed  to  bribe,  terrify  or  cajole  the  Progressives  into 
granting  the  desired  taxes.  His  attempt  to  terrify  the  press 
was  similarly  fruitless.  The  elections  of  October,  1863  re- 
sulted in  an  overwhelming  victory  for  the  Progressives. 
Schulze-Delitzsch  as  one  of  the  Progressive  leaders  had  now 
become  a  national  figure.  He  and  his  societies  were  hated 
more  than  ever  by  the  Conservatives  and  by  the  government. 
But  the  only  result  of  their  hard- fought  victory  was  that 
Bismarck  started  on  his  policy  of  collecting  taxes  without 
legal  authority. 

In  the  growing  partisanship  of  this  year  it  took  only  the 
tactlessness  of  a  friend  to  precipitate  a  violent  personal 
quarrel  between  Schulze-Delitzsch  and  his  coadjutor,  Huber. 
The  latter  then  withdrew  his  assistance  from  the  Gild  of  the 
Future.  And  at  the  very  instant  when  Schulze-Delitzsch 
thus  lost  this  old  friend,  he  also  gained  a  new  enemy.  This 
was  the  time  when  that  remarkable  socialist  leader,  Lassalle, 
was  starting  on  the  series  of  moves  by  which  he  succeeded 
in  deluding  Bismarck  into  the  belief  that  the  proletariat  of 
the  great  cities  would  be  staunch  Conservatives  if  only  they 


76  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [76 

were  given  the  right  to  vote.  The  Progressives  were  Bis- 
mark's  great  enemies,  therefore  from  Lassalle's  point  of 
view  it  was  desirable  to  attack  Progressive  leaders  on  the 
ground  that  their  plans  were  not  favora:ble  to  propertyless 
wage-earners.  In  addition  to  this  Schulze-Delitzsch  and 
his  societies  were  much  open  to  attack.  Schulze-Delitzsch 
had  in  all  sincerity  advocated  them  as  favorable  to  wage- 
earner  and  small-tradesman.  Yet  in  practice  it  was  found 
that  usually  it  was  only  the  small  tradesman,  the  man  who 
was  in  business  for  himself,  who  could  use  loans  produc- 
tively and  furnish  the  proper  security.  The  people's  banks 
benefited  laborers  chiefly  when  they  ceased  to  be  laborers 
and  became  business  men.  Lassalle  as  a  champion  of  the 
proletariat  had  a  real  case  to  make  against  the  Progressive 
leader.  j 

Lassalle's  attack  on  Schulze-Delitzsch  and  his  organiza- 
tions apparently  took  the  latter  by  surprise.  But  so  good  a 
war  horse  was  never  unready  for  a  fight,  and  he  replied 
vigorously.  In  fact  the  year  1863  is  remarkable  for  the 
volume  of  his  literary  productivity.  His  book  The  Work- 
ing  Classes  and  Cooperation  published  five  years  before,  re- 
appeared in  a  second  edition.  Six  lectures  before  a  Berlin 
trade-union  were  published  as  a  Chapter  in  a  German 
Workman's  Catechism.  Among  the  other  lectures  which 
were  published  this  year  were  "  Labor  ",  "  Capital  and  its 
Relation  to  Labor ",  "  Exchange,  Value  and  Free  Com- 
petition "  and  three  lectures  on  "  The  Practical  Means  and 
Ways  for  Elevating  the  Laboring  Classes ".  As  to  the 
net  result  of  the  debate,  it  may  be  said  that  it  chiefly  suc- 
ceeded in  defining  the  position  of  each.  lassalle  was  ad- 
vocating cooperative  factories  established  at  once  by  state 
aid.  Schulze-Delitzsch  knew  enough  of  the  difliculties  of 
cooperation  to  point  out  the  visionary  character  of  such  a 
scheme  at  that  time.     And  in  this  view  history  certainly 


y^]  SCHULZE-DELITZSCH  yy 

has  supported  his  contention.  Two  years  later,  on  Bis- 
marck's request,  the  king  endowed  one  such  cooperative 
factory  which  was  to  be  run  by  a  society  whose  leader, 
Florian  Paul,  was  one  of  Lassalle's  own  pupils.  The  chief 
result  was  that  the  king's  money  was  lost.  But  Lassalle 
drove  Schulze-Delitzsch  into  the  position  of  defending  the 
capitalist  employer. 

This  controversy  was  further  embittered  the  next  year 
by  the  appearance  of  Lasselle's  pamphlet  entitled  Herr 
Bastiat  Schulze  von  Delitssch,  der  okonomische  Julian 
(Berlin,  1864).  The  warfare  was  then  cut  short  by  the 
untimely  death  of  Lassalle.  But  long  before  this  happened 
Schulze-Delitzsch  was  a  made  man.  Few  men  owe  so 
much  to  their  enemies  as  Schulze-Delitzsch  does  to  Lassalle. 
Up  until  this  time  he  had  been  handicapped  by  some  of  his 
earlier  utterances.  His  remarks  on  the  desirability  of  co- 
operative factories,  his  desire  to  have  workshops  in  which 
the  workers  had  a  vote,  expressed  in  his  Associations- 
buch  in  1853  ^^^  caused  him  to  be  regarded  with  suspicion 
by  the  larger  employers,  just  as  he  had  for  different  reasons, 
been  hated  by  the  autocracy  and  by  the  reactionaries.  Now 
he  had  become  the  spokesman  of  the  Progressive  Party  and 
incidentally  of  the  capitalist  employer.  His  cooperative 
banks  began  to  grow  through  the  accession  of  a  more  sub- 
stantial type  of  member. 

It  also  happened  just  at  this  time  that  some  of  his  political 
associates  had  started  a  movement  to  secure  for  Schulze- 
Delitzsch  some  substantial  recognition  of  his  services. 
After  the  recent  collapse  of  the  movement  to  secure  for  him 
a  more  adequate  salary,  it  had  seemed  desirable  that  this 
should  take  the  form  of  a  public  testimonial,  for  which 
popular  subscriptions  would  be  solicited.  This  had  been 
agreed  upon  by  his  friends  at  a  meeting  held  in  one  of  the 
committee  rooms  of  the  House  of  Representatives  in  April, 


78  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [78 

1863.  They  then  had  sent  out  a  letter  which  reminded  its 
recipients  of  England's  generous  gift  to  Cobden  and  of 
the  brilliant  services  Schulze-Delitzsch  had  rendered  his 
country.  Lassalle's  attack  came  just  in  time.  It  made  the 
movement  popular  not  only  among  Schulze-Delitzsch' s  old 
friends  but  also  among  the  new  ones.  Finally  the  gift  was 
presented  October  4,  1863.  On  the  following  day  Schulze- 
Delitzsch  published  a  letter  in  which  he  accepted  the  gift,  but 
devoted  it  chiefly  to  others.  From  the  amount  given  he  ac- 
cepted enough  to  purchase  a  house  for  himself  in  Potsdam. 
Considerable  alterations  had  to  be  made  in  the  gardens  of 
the  house  chosen,  but  these  improvements  he  paid  for  him- 
self. The  balance  of  the  fund  was  turned  over  to  a  board 
of  trustees  to  be  administered  as  an  endowment.  The  in- 
come from  this  endowment  was  to  go  to  him  and  his  family, 
but  afterwards  it  was  to  be  paid  to  those  men  whose  public 
service  best  deserved  special  reward  in  the  opinion  of  this 
board.  This  board  of  trustees  was  later  incorporated  in  the 
Duchy  of  Saxe-Coburg  and  to  it  Schulze-DeUtzsch  turned 
over  his  gift  amounting  then  to  about  150,000  marks. 

Two  other  achievements  marked  this  busy  year.  Re- 
presentative Schulze-Delitzsch  secured  the  debate  of  his 
new  law  on  cooperative  societies.  And  Counsel  Schulze- 
Delitzsch  was  able  to  capitalize  the  friendship  and  interest 
of  some  of  his  newer  and  wealthier  supporters  in  a  striking 
fashion.  Out  of  a  group  of  large  employers  he  organized 
an  "  endorsement  union  "  by  means  of  which  his  people's 
banks  were  able  to  secure  loans  from  the  banking  house  of 
Leo  Delbriick  and  Co.  of  Berlin.  i 

But  Schulze-Delitzsch's  experience  with  charity  and  un- 
paid service  was  ever  unlucky.  In  the  very  next  year  there 
was  a  financial  panic  and  the  banking  house  of  Leo 
Delbriick  &   Co.  promptly  withdrew  its  support  and  left 


79]  SCHULZE-DELITZSCH  79 

the  cooperatives  very  much  in  the  lurch/  Luckily  the  year 
1864  was  less  strenuous  in  other  respects.  It  was  marked, 
as  might  be  expected,  by  a  significant  growth  within  the 
cooperative  movement.  While  not  so  striking  perhaps  as 
the  era  when  political  forces  caused  the  English  building 
and  loan  associations  to  multiply  over  night,  the  situation 
was  analogous  and  the  growth  extraordinary.  The  annual 
convention  of  the  movement  was  held  this  year  in  Mainz. 
Here  the  new  strength  of  the  movement  was  recognized  by, 
the  adoption  of  a  new  name  and  form  of  organization. 
There  was  no  longer  to  be  a  mere  Counsellorship ;  there  was 
instead  created  the  Allgemeiner  Verb  and  der  deutschen 
Genossenschaften  or  the  *'  Universal  Federation  of  German 
Cooperative  Societies  ".  The  older  institutions,  such  as  the 
Counsellorship  and  the  subordinate  leagues,  were  of  course 
included  in  the  new  organization.  Then  the  whole  system 
was  reduced  to  order  by  the  adoption  of  a  written  constitu- 
tion. This  action  (taken  in  1864)  makes  the  Universal 
Federation  the  oldest  national  organization  of  cooperative 
societies  in  existence. 

January  2,  1865  saw  the  realization  of  another  of  Schulze- 
Delitzsch's  dreams.  The  growing  business  of  the  coopera- 
tives had  now  reached  such  a  size  that  it  seemed  possible  to 
organize  a  special  central  reserve  bank  of  their  own,  and 
thus  to  replace  the  unsatisfactory  connection  of  the  pre- 
vious year.  The  functions  of  this  bank  were  to  raise 
money  in  the  general  market  to  lend  to  the  cooperatives,  to 
accept  as  deposits  from  the  cooperatives  any  temporary  sur- 
plus funds  they  might  have,  and  finally  to  assist  in  the 
transfer  of  money.  Two  thirds  of  the  stock  of  this  bank 
was  owned  by  the  various  people's  banks.  The  balance  was 
owned  by  private  individuals,  chiefly  Soergel  and  Parisius, 

[  1  M.  Fassbender,  F.  W,  Raiffeisen,  p,  131. 


8o  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [8o 

the  two  men  who  were  to  manage  it.  The  bank  was  officially 
known  as  "The  German  Cooperatives'  Bank;  Soergel,  Pa- 
risius  and  Co.",  but  popularly  it  was  called  the  Soergelbank. 

1865  was  also  marked  by  another  change  in  the  Gild  of 
the  Future  of  which  Schulze-Delitzsch  was  still  the  editor. 
It  will  be  remembered  that  this  had  been  made  an  independ- 
ent monthly  four  years  before.  It  was  now  transformed 
into  a  weekly  newspaper.  Still  another  evidence  of  the 
growing  strength  of  the  movement  was  shown  in  the  in- 
crease of  Schulze-Delitzsch' s  own  income.  As  is  customary 
with  managers  in  Germany,  his  pay  depended  on  the  in- 
come of  the  organization  he  was  managing.  The  great  in- 
crease in  the  strength  of  the  cooperative  movement  at  this 
time  had  caused  Schulze-Delitzsch's  commissions  to  rise  to 
2500  Thalers  ($1875).  Apparently  this  seemed  too  large, 
so  his  salary  was  now  fixed  at  2000  Thalers  ($1500).  The 
percentage  of  their  profits  which  cooperatives  had  to  pay 
into  the  league,  was  then  cut  in  half.  Even  with  this 
change,  the  League's  receipts  were  soon  sufficient  to  cover 
the  incidental  expenses  of  the  bureau  and  to  create  a  sur- 
plus.^ Of  course  a  very  considerable  allowance  must  be 
made  for  the  difference  in  the  value  of  money,  but  even 
with  this  allowance  it  can  scarcely  be  urged  that  the  Uni- 
versal Federation  overpaid  its  brilliant  Counsel.  This  nig- 
gardliness seems  to  be  inevitable  in  a  situation  when  salaries 
are  paid  by  a  more  or  less  democratic  body,  in  which  there 
is  a  considerable  majority  of  men  with  limited  means. 
Many  men  are  willing  to  pay  another  a  little  more  than 
they  are  earning.  Not  so  many  are  willing  to  pay  very 
much  more. 

During  this  year  Schulze-Delitzsch  continued  his  struggle 
to  get  a  special  statute  for  his  banks.     In  fact  from  the 

1  A.  Bernstein,  op.  cit.,  p.  156  et  seq. 


gl]  SCHULZE-DELITZSCH  8l 

time  of  the  organization  of  the  secretariat  this  had  been  one 
of  his  chief  aims,  and  since  the  organization  of  the  Universal 
Federation  it  had  certainly  been  the  chief  aim  of  the  Federa- 
tion's Counsel.  But  progress  was  slow.  This  year  the 
Conservative  party  included  in  their  platform  a  plank  favor- 
ing the  creation  of  cooperative  factories  by  state  aid  and 
Bismarck  secured,  as  has  been  stated,  the  royal  endowment 
of  one  such  project.  To  this  policy  of  the  Conservatives 
the  Progressives  replied  with  Schulze-Delitzsch  as  their 
spokesman.  But  naturally  this  did  not  immediately  for- 
ward the  cause  of  the  people's  banks.  Bismarck  was  run- 
ning the  government.  Parliament  and  the  Progressives  were 
decidedly  out  of  power.  It  happened  that  the  ministry  was 
forming  just  at  this  time  a  commission  to  study  the  con- 
dition of  the  laboring  classes.  This  commission  was  to 
study  especially  the  problem  of  cooperation  which  had  be- 
come acute  through  the  debate  of  Schulze-Delitzsch  and 
Lassalle.  Several  urged  Bismarck  to  appoint  Schulze- 
Delitzsch  on  this  board,  but  he  declined,  condemning  the 
people's  banks  "  because  he  regarded  them  as  Schulze- 
Delitzsch's  political  instruments  in  order  to  win  an  influence 
over  tradesmen  and  wage-earners  and  thus  to  strengthen 
the  Progressive  party  against  the  government  ".^ 

On  January  i,  1866  Schulze-Delitzsch' s  periodical  under- 
went its  final  transformation,  changing  its  title  from  the 
Gild  of  the  Future  to  Blatter  filY  GenossenschaftS" 
wesen  or  Cooperative  Journal^  the  title  under  which  it 
has  now  appeared  each  week  for  about  half  a  century. 
This  year,  like  the  preceding,  was  again  devoted  largely  to 
agitation  designed  to  secure  the  passage  of  a  statute  giving 
legal  protection  to  the  cooperative  form  of  organization. 
By  this  time  the  cooperative  institutions  of  Germany  were 

1  Letter  of  Bismarck's,  quoted  by  Finck,  op.  cit.,  p.  86. 


S2  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [82 

attracting  attention  even  beyond  the  confines  of  the  Father- 
land. In  the  previous  year  M.  Perdonnet,  director  of  the 
French  Imperial  Polytechnic  Institute,  had  expressed  a  wish 
that  Schulze-Delitzsch  might  be  present  at  a  celebration  to 
be  held  by  that  institution;  but  this  invitation  Schulze- 
Delitzsch  had  been  compelled  to  decline.  Now  a  Chamber 
of  Commerce  in  Riga  tried  to  secure  a  lecture  there  on  the 
subject  of  cooperation,  but  characteristically  the  Russian 
government  prohibited  the  meeting.^  In  the  mean  time 
Schulze-Delitzsch' s  fight  with  Bismarck  went  merrily  on, 
and  the  year  was  marked  by  another  hostile  letter  from  the 
latter  to  a  correspondent  in  which  he  characterized  the 
Schulze-Delitzsch  cooperatives  as  "  incapable  of  surviv- 
ing ".^  Finally  progress  in  the  internal  affairs  of  Prussia 
was  blocked  for  this  year  at  least  by  the  popular  interest  in 
the  Seven  Years  War  with  Austria  and  the  triumph,  sig- 
nalized by  the  treaty  of  Prague,  (August  23,  1866). 

But  1867  was  a  year  of  reconciliation  in  Prussian  politics. 
Bismarck  felt  that  his  military  triumph  had  given  him  and 
his  policy  of  "  blood  and  iron  "  so  secure  a  position  with 
the  Prussian  people  that  he  could  afford  to  be  generous. 
Perhaps  it  would  be  more  truthful  to  say  that  he  thought 
that  with  his  present  prestige,  he  could,  by  being  generous 
and  conciliatory  at  this  time,  win  the  popular  support  he 
needed  for  his  next  moves.  At  any  rate,  in  organizing  the 
North  German  Confederation,  he  provided  for  popular  parti- 
cipation in  government  and  universal  manhood  suffrage. 
He  restored  the  Prussian  constitution  and  asked  for  a  bill  of 
indemnity  excusing  him  for  his  lawless  conduct  during  the 
preceding  four  years.  This  was  granted  him  with  en- 
thusiasm. 

*A.  Bernstein,  op.  cit.,  p.  171. 
*  Letter  of  Bismarck,  op.  cit. 


83]  SCHULZE-DELITZSCH  83 

During  this  love- feast  of  mutual  concessions,  Schulze- 
Delitzsch  finally  got  his  special  cooperative  statute  pushed 
through  parliament  and  signed  (March  2y,  1867).  This 
law  was  opposed,  as  we  shall  see,  by  a  rival  group  of  co- 
operative organizations,  and  it  was  fought  bitterly  by  the 
Conservatives.  The  Conservatives'  position  in  this  matter 
was  perhaps  best  stated  by  their  leaders,  von  Kleist-Retzow, 
who  said,  "  The  cooperatives  are  an  organization  of  a  state 
within  a  state  under  a  leader  who  stands  out  as  a  foe  to 
the  government  of  that  state  as  well  as  to  the  church  "/ 

The  Conservatives  tried  hard  to  subject  the  cooperatives 
to  special  government  supervision,  but  with  Bismark's  virtual 
desertion  of  their  cause,  they  failed.  Schulze-Delitzsch's 
bill  was  passed  with  only  insignificant  amendments.  This- 
achievement  was  perhaps  the  greatest  single  triumph  of 
Schulze-Delitzsch's  career.  To  a  large  extent  the  bill  and 
the  agitation  which  made  its  passage  inevitable  were  his- 
personal  achievements.  His  also  had  been  the  invention  of 
the  institution  which  was  now  thus  formally  vested  with 
legal  individuality. 

In  the  month  following  this  achievement  Schulze-Delitzsch* 
was  invited  to  attend  an  Economic  Conference  in  Paris, 
as  the  representative  of  the  German  cooperative  movement. 
But  while  he  was  actually  on  the  journey  thither,  he  heard< 
that  the  French  government  had  prohibited  the  meeting. 
Then  with  the  approval  of  his  cooperatives,  he  issued  a: 
public  protest,  in  the  course  of  which  he  said — "  Herein  lay 
the  great  significance  of  the  Cooperative  Congress,  to  build 
up  just  such  an  international  understanding.  It  would  have 
been  a  peace  conference.  .  .  .  The  necessary  outcome  from  it 
would  have  been  a  general  energetic  protest  against  war  '*. 
This  letter  promptly  got  him  into  a  position  which  was  emr 

^  Speech  of  von  Kleist-Retzow  quoted  by  Finck,  op.  cit.,  p.  87. 


§4  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [84 

barrassing,  to  say  the  least.  In  July  of  this  very  year  he 
was  invited  as  a  representative  of  the  Progressive  and 
Liberal  Parties  in  Germany  to  be  present  at  a  peace  con- 
ference held  in  Geneva  whose  purpose  it  was  to  help  dispel 
the  gathering  of  war-clouds  between  France  and  Prussia. 
But  Schulze-Delitzsch  was  now  reconciled  to  the  policy  of 
heavy  armament  "  on  account  of  the  peculiar  position  of 
our  fatherland "/  To  attend  a  conference  in  Paris  and 
address  a  peace  resolution  to  the  French  government  was 
one  thing.  To  attend  an  international  conference  in  Geneva 
at  which  the  Prussian  policy  of  preparedness  was  to  be  criti- 
cized was  a  horse  of  a  very  different  color.  Schulze- 
Delitzsch  declined. 

One  other  useful  institution  within  the  cooperative  family 
was  born  this  year.  The  Soergelhank  succeeded  in  creating 
the  Giroverhand,  a,  clearing  house  which  much  reduced 
the  cost  of  collecting  the  claims  which  the  various  people's 
hanks  held  upon  each  other.^ 

The  decade  following  these  achievements  has  frequently 
been  called  the  ''  flowering  season  "  of  the  Schulze-Delitzsch 
movement.^  The  name  is  misleading  in  its  implication  that 
all  that  followed  this  period  was  a  frost.  But  the  name 
does  call  attention  to  two  facts : — the  movement  was  grow- 
ing rapidly  and  the  Schulze-Delitzsch  societies  held  a  virtual 
monopoly  of  the  cooperative  field.  So  impressive  was  the 
growth  that  plans  were  made  to  establish  a  separate  branch 
of  the  Soergelhank  at  Frankfort.  But  this  project  had  to 
be  delayed  for  a  while  because  of  lack  of  capital.     Thus  the 

*C/.  letters  of  Schulze-Delitzsch  quoted  in  Bernstein,  op.  cit.,  p.  174 
et  seq. 

W.  Wygodzinski,  Das  Genossenschaftswesen  in  Deutschland  (Leipzig, 
1911),  p.  171. 

•C/.  R.   Finck,   op.   cit.   and   Zeidler,   Die   Geschichte   des   deutschen 
(Genossenschaftswesen  der  Neuzeit  (Leipzig,  1893). 


85]  SCHULZE-DELITZSCH  85 

sole  outstanding  achievement  of  the  next  year  was  recorded 
in  the  adoption  of  the  Prussian  Cooperative  law  by  the 
newly  formed  North  German  Confederation  with,  however, 
the  addition  of  an  amendment  which  was  proposed  by 
Schulze-DeHtzsch  himself  (July  4,  1868). 

The  legal  structure  of  his  organizations  now  being  com- 
plete, the  Counsel's  next  task  was  to  explain  it  to  his  societies 
and  their  members.  For  this  purpose  he  prepared  and 
published  his  little  book  on  the  Legal  Position  of  Com- 
mercial  and  Business  Cooperative  Societies,  (Berlin,  1869).* 
This  book  was  the  most  scientific  of  his  writings  and 
in  connection  with  the  great  work  of  which  it  was  the 
formal  expression,  it  was  to  bring  him  in  the  course  of 
years  a  very  considerable  amount  of  honor.  Even  within 
the  year  of  its  publication  there  came  to  him  the  Grand 
Diplome  d'Honneur,  a  prize  of  the  first  rank  from 
Amsterdam,  and  a  personal  letter  from  Louis  Phillippe, 
Count  of  Paris  and  pretender  to  the  throne  of  France.  In 
the  years  that  followed,  he  was  elected  an  honorary  member 
of  the  English  Cobden-Club,  of  the  Accademia  Hsco-statis' 
tica  of  Milan,  of  the  Societa  d'Economia  poUtica  of 
Lombardy,  of  the  Accademia  de'LincH  in  Rome  and  of 
various  other  organizations. 

The  year  following  this  (1870)  was  the  year  of  the 
Franco-Prussian  war.  The  regular  annual  meeting  of  the 
Universal  Federation  of  Cooperative  Societies  was  omitted 
for  the  only  time  in  the  nineteenth  century.  Of  the  various 
events  which  affected  Schulze-Delitzsch  personally,  perhaps 
the  most  significant  was  his  refusal  to  attend  a  new  peace 
conference  held  in  Geneva.     The  letters  in  which  he  ex- 

1 H.  Schulze-Delitzsch,  Die  Gesctzgehung  iiber  die  privatrechtUche 
Stellung  der  Erwerhs  und  Wirthschafts  Genossenschaften  mit  besonderer 
Riicksicht  auf  die  HaftpHicht  bei  kommersiellen  Gesellschaften  (Berlin, 
Verlag  von  Herbig,  1869). 


86  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [86 

plained  his  reasons  for  so  doing  were  published  by  their 
recipient,  Professor  Vigano,  in  the  Gazetta  di  Milano. 
These  letters  were  then  reprinted  in  the  New  York  Demo- 
crat and  are  said  to  have  had  some  little  effect  in  arousing 
sympathy  for  his  country's  cause,  not  only  in  Italy,  but  even 
in  the  United  States. 

January  28,  1871  saw  the  surrender  of  Paris  to  the 
German  armies.  Officially  the  war  was  not  ended  until  the 
treaty  of  Frankfort  was  signed  on  May  10,  1871.  But  in 
spite  of  this,  and  the  fact  that  the  great  indemnity  was  not 
paid  until  still  later,  nevertheless  it  is  probably  true  that 
the  great  period  of  business  revival  and  prosperity  in  Ger- 
anany  is  best  dated  from  this  surrender.  So  striking  was 
the  business  "  boom "  of  the  next  few  years,  that  this 
period  is  still  spoken  of  by  Germans  as  the  Griinderzeit 
or  "  Era  of  Promotions  '".  It  was  an  era  when  prices  were 
rising  rapidly,  when  capital  was  abundant  and  easy  to 
secure.  For  the  Schulze-Delitzsch  movement  this  meant 
that  it  was  now  possible  for  them  to  raise  the  capital  neces- 
sary to  start  the  Frankfort  branch  of  the  Soergelhank. 
Thus  another  dream  was  realized.  This  branch  was 
furthermore  fortunate  in  securing  able  management.  But 
capital  was  now  too  easy  to  secure  and  for  the  first  time 
in  their  history  the  monopoly  of  the  Schulze-Delitzsch  in- 
stitutions in  the  cooperative  field  was  seriously  threatened 
by  the  creation  of  a  rival  to  the  Soergelhank.  This  rival 
was  the  Zentralhank  fiir  Genossenschaften  or  *'  Reserve 
Bank  for  Cooperatives  '*  in  Berlin.^ 

But  Schulze-Delitzsch's  marvellous  combination  of 
energy,  public  spirit  and  organizing  ability  was  not  yet 
entirely  absorbed  by  these  various  movements.  In  the 
spring  of  this  year  a  Berlin  schoolmaster  and  a  Biebrich 


R.  Finck,  op.  cit.,  pp.  76  and  77. 


Sy]  SCHULZE-DELITZSCH  8/ 

manufacturer  had  started  to  organize  a  "  Company  for 
the  Extension  of  Popular  Education  ".  They  succeeded  in 
interesting  a  number  of  others  and  finally  an  assembly  was 
held  (June  14,  1871)  for  determining  the  constitution. 
Schulze-Delitzsch  was  invited  to  become  president  of  this 
gathering.  Later  he  undertook  the  task  of  organizing 
throughout  Germany  local  associations  and  branches  of 
this  parent  body.  In  this  he  had  able  assistance  from  two 
other  men,  but  the  task  was  performed  under  his  leadership. 
This  institution  has  now  led  a  useful  existence  for  nearly 
half  a  century.  For  our  purposes  it  is  interesting  as  the 
last  of  the  great  organizations  which  owed  their  existence 
to  his  energy  and  public  spirit.  It  must  be  remembered  that 
even  when  he  undertook  this  task  he  was  already  well  along 
in  years  and  had  been  through  enough  bitter  fights  more 
than  to  fill  many  lifetimes.  Nevertheless  he  remained  presi- 
dent of  this  organization  until  the  day  of  his  death.^ 

During  this  year  the  cooperative  movement  suffered  one 
reverse.  In  Bavaria  these  banks  had  been  permitted  to 
adopt  limited  liability.  The  extension  of  the  authority  of 
the  empire  crushed  out  this  new  form  in  1872  and  Schulze 
approved  of  this  compulsion  of  unlimited  liability. 

With  the  continued  ease  in  securing  capital,  another  rival 
to  Schulze-Delitzsch's  Soergelhank  was  started  in  the  fol- 
lowing year.  This  institution,  however,  was  destined  to 
outlive  Schulze-Delitzsch  himself.  It  was  the  Rheinisch- 
Westfdlische  Genossenschaftshank  in  Cologne  which  lasted 
from  1872  until  1889. 

The  year  1873  was  a  year  of  contrasted  pleasures  and 
pain.  It  brought  him  the  honor  which  probably  he  valued 
most  of  all  those  which  were  heaped  upon  him;  namely,  the 
honorary  degree  of  doctor  of  laws  from  the  University  of 

1  A.  Bernstein,  op.  cit.,  p.  183  and  Wolff,  "  People's  Banks'*  p.  76. 


88  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [88 

Heidelberg.  This  was  conferred  primarily  in  recognition 
of  his  creation  of  a  new  legal  form  and  his  enrichment  of 
jurisprudence  thereby.  But  1873  brought  also  the  great 
crisis  and  the  ^beginning  of  hard  times.  A  whole  row  of 
people's  banks  went  down  with  the  onset  of  the  storm. 
The  disappointment  must  have  been  particularly  bitter  be- 
cause the  series  of  disasters  which  started  with  this  crisis 
and  lasted  right  through  the  hard  times  of  the  next  few 
years,  formed  the  first  real  reverse  suffered  by  the  Schulze- 
Delitzsch  movement. 

But  even  in  the  midst  of  this  disappointment  there  were 
certain  gloomy  consolations.  Schulze-Delitzsch's  pet,  the 
Soergelhank,  was  hard  hit  and  was  compelled  to  reorganize 
with  a  small  capital;  but  the  Soergelhank' s  rival  in  Berlin, 
the  Zentralhank  fur  Genossenchaften,  was  wiped  out  en- 
tirely.^ In  the  collapse  of  the  various  people's  banks, 
Schulze-Delitzsch's  pet  idea,  unlimited  liability,  caused  ter- 
rible suffering ;  ^  but  the  most  numerous  losses  occurred 
among  those  banks  which  were,  contrary  to  his  advice,  mak- 
ing loans  to  non-members.^  The  heaviest  losses  occurred 
among  the  members  of  Schulze-Delitzsch's  Allgemeiner 
Verhand,  but  at  least  he  had  the  comfort  that  the  largest 
number  of  bankruptcies  occurred  outside  it.  Finally 
Schulze-Delitzsch  had  in  his  New  Year's  article  of  1872 
warned  his  banks  to  expect  a  great  crisis  and  had  in  the 
months  following  given  directions  as  to  methods  by  which 
his  banks  could  keep  themselves  in  position  to  meet  such  a 
storm.*  But  such  comfort  must  have  been  small.  The 
cooperative  structure  was  shaken  to  its  foundations. 

1  R.  Finck,  op.  cit.,  p.  75. 

2  R.  Finck,  op.  cit.,  p.  87. 
8  R.  Finck,  op.  cit.,  p.  27. 

4  R.  Finck,  op.  cit.,  p.  97,  and  cf.  Wolff,  "  People's  Banks,"  p.  76. 


89]  SCHULZE'DELITZSCH  89 

Such  disasters  as  the  suspension  of  the  people's  banks  in 
Dresden,  Leubus,  Diisseldorf,  etc.  destroyed  popular  con- 
fidence in  the  cooperative  movement  to  such  an  extent  that 
in  some  districts  it  was  not  only  impossible  to  start  a  new 
cooperative  society,  but  even  in  surrounding  cities  the 
people's  banks  already  in  existence  adopted  the  legal  form 
of  joint-stock  corporations  in  order  to  avoid  the  odium  of 
the  cooperative  name.  Before  the  end  of  the  year  it  was 
evident  that  the  Schulze-Delitzsch  cooperative  statute  needed 
amendment,  and  a  new  struggle  with  the  Conservative 
party  over  the  form  of  this  amendment  had  started.  In 
Austria  during  this  very  year  a  statute  was  passed  which 
gave  people's  banks  the  privilege  of  adopting  limited  liability. 

The  year  1874  was  marked  by  at  least  one  pleasant  event. 
The  French  economist,  Benjamin  Rampal,  had  translated  a 
large  portion  of  Schulze-Delitzsch's  works,  some  of  them 
literally,  some  of  them  with  changes  designed  to  make  them 
appeal  to  French  readers.  These  translations  now  appeared 
in  two  volumes  and  were  greeted  with  wide-spread  approval,^ 
which  is  all  the  more  interesting  in  view  of  the  recency  of 
the  Franco-German  war.  For  the  rest,  the  year  was  one 
of  anxiety.     His  people's  banks  were  in  distress. 

1875  is  perhaps  the  saddest  of  the  years  in  this  period. 
It  occurred  right  in  the  middle  of  the  period  of  business  de- 
pression and  was  marked  by  the  disaster  to  the  Diisseldorf 
bank,  whose  bankruptcy  has  been  called  the  greatest  misfor- 
tune that  ever  befell  the  cooperative  movement.^  This  year 
saw  also  the  end  of  Schulze-Delitzsch's  long  service  in  the 
Prussian  House  of  Representatives  of  which  he  had  been 
a  member  continuously  for  fifteen  years.  The  important 
law-making  body  was  no  longer  the  Prussian  parliament 

1  A.  Bernstein,  op.  cit.,  p.  181. 

*Cf.  Finck,  op.  cit.  and  Zeidler,  Die  Geschichte  des  deutschen  Genossen- 
schaftswescns  der  Neuzeit  (Leipzig,  1893). 


go  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [90 

but   the    German   Imperial    Reichstag,    in   which    Schulze- 
Delitzsch  was  now  to  serve  for  several  years  more/ 

On  January  19,  1876  in  the  form  of  a  question  to  the 
ministry  in  the  German  Reichstag,  Schulze-Delitzsch  de- 
nounced as  non-cooperative,  two  societies  which  had  been 
admitted  to  registration  in  Neuwied.^  These  two  societies 
had  no  share  capital  and  their  officers  were  not  members  of 
the  society.  These  two  differences  formed  the  basis  of 
his  denunciation.  The  reason  for  his  denunciation  of  them 
was  perhaps  different.  From  the  time  when  the  ideas  of 
Schulze-Delitzsch  had  begun  to  spread  at  all,  there  had  been 
societies  founded  on  his  general  plan  which  had  refused  to 
recognize  his  leadership,  had  remained  outside  the  Universal 
Federation,  and  had  not  copied  the  details  of  the  Schulze- 
Delitzsch  scheme  of  administration.  Furthermore,  there 
had  now  existed  for  some  years  a  growing — and  a  rapidly 
growing — group,  led  by  a  rival  whose  plans  differed  from 
those  of  Schulze-Delitzsch  in  some  respects.  These  coopera- 
tives, the  Raiffeisen  banks,  now  appear  for  the  first  time 
in  the  history  of  the  Schulze-Delitzsch  movement  as  ser- 
ious factors.  This  is  interesting  because  when  we  come 
to  examine  the  Raiffeisen  movement,  we  shall  find  that 
Schulze-Delitzsch  and  his  banks  had  for  a  long  time  been 
a  powerful  factor  in  their  history.  But  by  1876  the  Raif- 
feisen banks  had  grown  large  enough  to  disturb  the  balance 
of  power.  Schulze-Delitzsch's  attack  on  his  rival  can 
scarcely  be  viewed  as  anything  but  a  mistake.  It  did  little 
good,  and  it  rendered  bitter  the  differences  which  had  long 
existed  between  the  two  leaders  and  the  two  types  of  banks. 
But  the  attack  may  perhaps  be  understood,  even  if  not  com- 
mended.    Schulze-Delitzsch  was  the  inventor  of  an  institu- 

^A.  Bernstein,  op.  cit.,  p.  183. 
'R.  Finck,  op.  cit.,  p.  95. 


9 1  ]  SCHULZE-DELITZSCH  9 1 

tlon  which  was  now  falling  into  disfavor  because  of  re- 
peated bankruptcies.  Here  were  societies  organized  under 
his  own  statute,  which  were  adopting  policies  that  seemed 
to  him  to  make  them  less  safe.  To  him  they  seemed  to  be 
increasing  the  possibility  of  bankruptcies  within  the  coopera- 
tive movement.  Discredit,  especially  at  this  time,  was  a 
serious  matter.  And  Schulze-Delitzsch,  as  Counsel  of  the 
Universal  Federation,  was  their  legal  and  political  represen- 
tative. The  attack  was  probably  as  inevitable  as  it  was 
successful. 

In  this  year  also  he  introduced  into  the  Reichstag  his  first 
bill  to  amend  the  Cooperative  Law  and  to  secure  the  re- 
forms, which  seemed  to  be  indicated  as  necessary  by  the  ex- 
perience gained  in  the  current  business  depression.  This 
bill  was  referred  to  a  committee.  But  the  committee  never 
reported,  as  the  time  and  interest  of  the  Reichstag  were 
absorbed  by  the  bill  to  establish  the  federal  judiciary.^  One 
personal  honor  came  to  him  at  this  time  and  must  have 
been  much  appreciated,  in  part  because  of  the  time  at  which 
it  came.  The  Brussels  Exposition  awarded  to  him  a  gold 
medal,  as  first  prize  for  his  services  to  the  cooperative  move- 
ment. 

In  1877  Schulze-Delitzsch  presented  his  second  bill  to  re- 
form the  people's  banks.  But  this  he  later  withdrew  be- 
cause the  government  promised  to  take  up  the  matter  of 
amending  the  Cooperative  Law  as  soon  as  the  bill  to  re- 
form the  joint  stock  corporations  had  been  enacted.  No 
further  progress  with  this  project  was  made  for  some  time, 
although  in  the  year  following  the  Reichstag  asked  the 
chancellor  to  present  a  supplementary  law  for  this  purpose 
as  soon  as  possible. 

But  this  next  year  was  marked  by  another  of  his  ever 

1  R.  Finck,  op.  cit.,  p.  102. 


92  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [92 

recurrent  fights.  Two  attempts  had  been  made  on  the  Ufe 
of  the  king  by  people  who  were  alleged  to  be  Socialists. 
The  excitement  over  these  events  gave  Bismarck  an  oppor- 
tunity to  repress  a  party,  whose  growth  was  endangering 
his  power  and  was  causing  him  alarm.  And  to  this  repres- 
sive legislation  the  Conservatives  now  tried  to  subject  not 
only  the  people's  banks,  but  also  registered  companies, 
unions  and  all  organizations  whose  purpose  was  mutual  aid. 
Such  organizations  were  not  to  be  prohibited,  but  they  were 
to  be  subject  to  special  legal  supervision.  This  project  was 
recommended  by  the  committee  of  the  Bundesrath  to  whom 
the  Socialist  laws  had  been  referred.  But  Schulze-Delitzsch 
was  successful  in  having  the  project  thrown  out  by  the 
Bundesrath  in  their  meeting  of  July  4,  1868.^ 

Finally  this  summer  was  notable  because  in  it  Schulze- 
Delitzsch  completed  his  seventieth  year.  He  spent  the 
earlier  part  of  it  as  usual  in  attending  the  annual  meetings 
of  the  various  subordinate  leagues.  But  the  heat  was  tpo 
much  for  him.  He  became  sick.  None  the  less  he  tried 
to  attend  the  annual  meeting  of  the  Universal  Federation 
which  was  held  in  Eisenach  August  22-25,  but  there  suf- 
fered a  relapse  and  was  compelled  to  give  up  the  attempt 
and  return  home.  Thus  his  actual  birthday  (August  29) 
was  celebrated  very  quietly  although  from  many  places  re- 
solutions of  congratulation  and  respect  were  sent  to  him. 
With  his  ever  remarkable  vigor,  he  soon  recovered  and  was 
able  to  hold  a  somewhat  belated  dirthday  dinner.^ 

The  last  few  years  of  his  life  however  were  much  less 
active  than  the  previous  seventy.  His  health  remained 
far  from  good  and  he  was  compelled  to  husband  his  strength. 
However,  his  seventy-first  year  saw  him  still  active  enough 
to  secure  from  the  Bundesrath  a  repetition  of  the  Reich- 

1  R.  Finck,  op.  cit.,  p.  88. 

2  A.  Bernstein,  op.  cit.,  p.  185. 


93]  SCHULZE-DELITZSCH  93 

Stag's  request  to  the  chancellor  for  the  government's  bill  to 
amend  the  cooperative  law.  His  seventy-second  year  was 
largely  spent  in  waiting  for  the  enactment  of  the  Joint  Stock 
Company  law  and  in  waiting  for  Bismarck's  reply  to  these 
two  requests. 

In  the  following  year  (1881)  he  again  made  his  com- 
paign  for  membership  in  the  Reichstag  in  spite  of  his  grow- 
ing weakness.  And  on  April  28,  1881  he  presented  his 
last  and  most  comprehensive  bill  for  amending  the  Coopera- 
tive Law.  This  bill,  with  the  opposing  bill  presented  by 
the  Conservatives,  and  another  rival  project  presented  by 
a  representative  from  Saxony,  was  referred  to  a  committee, 
where  again  it  was  allowed  to  rust.^ 

At  the  convention  of  the  Universal  Federation  in  the 
following  year  (1882)  Schulze-Delitzsch  presented  his  last 
report  as  Counsel.  This  report  showed  that  there  were 
3,481  cooperative  societies  then  in  existence  in  Germany. 
Furthermore  there  were  by  this  time  similar  organizations, 
modeled  after  his  plan,  in  France,  Italy  and  other  coun- 
tries.^ It  was  a  bit  pathetic  therefore  that  in  this  last  re- 
port he  was  compelled  also  to  chronicle  the  bankruptcy  of 
the  bank  at  Stuttgart,  especially  since  this  bankruptcy  was 
the  last  of  the  great  series  of  disasters  precipitated  by  the 
panic  of  1873  ^^^  the  consequent  business  depression. 

But  1882  brought  one  more  great  disappointment.  Under, 
the  pressure  of  renewed  questioning  from  the  Reichstag 
chamber,  the  ministry  admitted  (December  8,  1882)  that  it 
was  not  planning  to  amend  the  existing  Cooperative  Law 
at  all,  but  was  planning  instead  to  bring  in  a  bill  for  an 
entirely  new  cooperative  law. 

Furthermore  Bismarck  was  now  making  common  cause 

*R.  Finck,  op.  cit.,  p.  103. 

'Dr.    Peter    Schmidt    in    Handworterbuch    der    Staatszvissenschaften 
<Jena,  1911). 


94  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [94 

with  the  Conservatives  and  the  Centrist  party.  In  this 
new  Hne-up  of  the  poHtical  forces  there  had  been  an  end  to 
the  power  of  the  Progressive  and  National  Liberal  elements. 
Thus  Schulze-Delitzsch  could  not  with  any  degree  of  cer- 
tainty count  upon  being  even  considered  in  the  preparation 
of  this  new  statute. 

Just  over  twenty  years  before  this  Schulze-Delitzsch  had 
moved  his  family  from  Delitzsch  to  Potsdam  and  had 
from  that  point  started  his  fight  for  the  enactment  of  this 
Cooperative  Law.  It  looked  now  as  if  his  legal  achieve- 
ments of  the  past  twenty  years  were  to  be  wiped  out.  So  far 
as  the  purely  legal  aspects  of  his  work  were  concerned,  he 
was  now  not  far  from  the  place  where  he  had  been  a  genera- 
tion before. 

Only  four  months  more  of  health  were  granted  to  the  old 
man,  and  during  this  time  he  was  compelled  to  watch  one 
of  his  provincial  leagues  making  preparations  to  desert  his 
Universal  Federation  and  to  organize  a  new  rival  federation 
of  its  own.  But  during  this  time  he  managed  to  write 
one  more  book,  a  tiny  volume  entitled  Material  for  Re- 
vising the  Cooperative  Law}  In  this  he  summarized  con- 
cisely his  position  on  the  various  points  involved.  To  a 
considerable  extent  this  book  determined  the  course  which 
the  new  statute  would  take  when  it  was  finally  passed,  but 
its  author  was  spared  the  bitterness  of  that  political  com- 
bat. On  April  29,  1883,  his  long  and  useful  life  was 
brought  to  a  close.  His  funeral,  four  days  later,  brought 
forth  a  tremendous  popular  demonstration,  which  included 
people  of  all  kinds  and  descriptions.  His  coffin  was  fol- 
lowed to  the  grave  by  some  ten  thousand  of  his  admirers,^ 
— a  fitting  close  to  a  life  singularly  rich  in  service  to  his 
fellow  man. 

1 "  Material    ziir    Revision    des    Genossenschaftsgesetzes,    nach    den. 
neuesten  Stande  der  Frage  geordnet." 
2  A.  Bernstein,  op.  cit.,  p.  197. 


CHAPTER  VI 

The  Schulze-Delitzsch  Movement  and 

Counsel  Schenck  : 

The  history  of  the  Schulze-Delitzsch  movement  may  be 
divided  into  three  main  periods.  The  first  of  these  would 
cover  the  time  up  to  the  death  of  Schulze-Delitzsch.  The 
second  would  coincide  roughly  with  the  administration  of 
Counsel  Schenck,  (1883- 1895)  and  the  third  would  cover 
the  administration  of  Counsel  Cruger  from  1895  to  the 
present. 

Each  of  these  periods  may  be  subdivided  of  course.  The 
leadership  of  Schulze-Delitzsch  for  example  might  be  se- 
parated into  four  parts,  1852-1859,  1859-1867,  1867-1873} 
and  1 873- 1 883.  But  first  the  reader  should  take  warning 
that  this  division  of  the  history  of  a  whole  movement  ac- 
cording to  the  term  of  office  of  one  officer  in  one  organiza- 
tion within  that  movement  is  highly  artificial.  It  overem- 
phasizes the  personal  factors  in  the  movement's  history.  It 
overemphasizes  the  personal  achievements  of  these  three 
men,  but  it  is  convenient  because  the  banks  have  passed 
through  sharply  contrasting  stages  which  correspond  roughly 
with  the  three  terms  of  office.  These  stages  however 
merged  into  each  other  gradually  and  to  mark  them  off 
sharply  some  rather  artificial  line  must  be  drawn.  Some 
event  must  be  chosen  during  the  period  of  transition  and 
the  next  stage  dated  from  that  event.  The  political  posi- 
tion of  the  Schulze-Delitzsch  movement  before  the  panic 
of  1873  was  very  different  from  its  position  when  the 
95]  95 


gS  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [96 

Reichstag  passed  the  law  of  1889.  This  change  occurred 
slowly  during  the  business  depression  of  the  seventies  and 
rapidly  after  1880.  Clearly  the  change  should  be  dated 
after  1880  and  before  1889.  This  period  from  1880  to 
1889  was  marked  by  two  events  of  prime  importance;  the 
organization  of  a  rival  federation  and  the  death  of  Schulze- 
Delitzsch.  Both  events  occurred  in  1883.  Therefore  that 
year  is  chosen  as  a  dividing  point,  and  the  death  of  Schulze- 
Delitzsch  is  chosen,  not  because  it  is  necessarily  the  more 
significant,  but  because  it  is  more  convenient. 

The  fact  that  the  movement  has  made  its  leaders,  rather 
than  been  made  by  them,  needs  to  be  emphasized  because  all 
three  leaders  of  the  Universal  Federation  have  been  men  of 
distinct  ability.  Each  has  done  his  part  well.  And  it  is 
easy  to  confuse  the  able  mouthpiece  of  a  powerful  move- 
ment with  the  movement  itself.  Furthermore,  this  personal 
prominence  of  the  mouthpiece,  or  Counsel,  is,  we  shall  find, 
enormously  re-enforced  by  the  internal  structure  of  the 
Universal  Federation.  Thus  it  is  not  always  easy  to  dis- 
tinguish to  what  extent  the  Counsel  is  really  an  independent 
leader  and  to  what  extent  he  may  lead  only  so  long  as  he 
leads  in  the  direction  the  movement  is  already  choosing  for 
itself.  It  is  safe  to  say  that  the  latter  has  been  the  case 
most  of  the  time  for  many  decades  back. 

There  has  been  one  exception  to  this  statement  that  the 
Counsel  can  lead  only  so  long  as  he  leads  where  he  is  driven. 
That  exception  was  to  be  found  in  the  earlier  history  of 
the  movement.  Before  1873  ^^^  especially  before  1859, 
Schulze-Delitzsch  not  only  led  the  cooperative  banking 
movement;  he  dominated  it.  Never  was  his  influence  over 
the  banks  greater  than  in  the  earliest  years  of  his  activity 
when  he  had  no  official  right  to  exercise  it.  In  the  early 
fifties  Schulze-Delitzsch  was  a  practically  unknown  young: 
radical,  a  parlor  Bolshevik,  who  was  more  or  less  discredited 


gy-j  THE  SCHULZE-DELITZSCH  MOVEMENT  gy 

even  though  he  had  been  acquitted  on  the  charge  of  treason 
and  inciting  to  riot.  But  the  people's  banks  were  few, 
small  and  struggling.  His  legal  knowledge  and  advice 
were  a  godsend,  his  influence  tremendous — within  its  small 
field.  On  the  other  hand  by  1865  Schulze-Delitzsch  had 
become  a  famous  man.  But  within  the  cooperative  move- 
ment, even  before  the  end  of  the  fifties,  new  leaders  had 
appeared  and  some  of  the  banks  were  prospering  so  that 
they  needed  to  be  really  dependent  on  no  one  but  them- 
selves. In  a  few  years  more  they  might  have  slipped  out 
from  Schulze-Delitzsch's  wing  completely.  Many  of  them 
had  already  done  so.  It  will  be  remembered  that  relatively 
few  came  into  his  league,  when  he  did  organize  it. 

It  is  true  that  the  chief  reason  for  this  staying  out  was 
probably  the  expense  of  membership  and  of  sending  dele- 
gates. But  in  part  it  was  the  appearance  of  other  leaders 
and  the  growing  self-sufliciency  of  the  societies. 

Schulze-Delitzsch  then  probably  seized  upon  the  psy- 
chological moment  for  the  organization  of  the  secretariat 
in  1859.  In  addition  to  giving  him  an  income,  it  brought  the 
officers  of  the  larger  and  more  successful  unions  into  joint 
control  with  him  over  the  affairs  of  the  movement.  It  thus 
gave  them  a  more  personal  interest  in  the  movement  as  a 
whole,  and  secured  their  cooperation  for  the  affairs  of  the 
movement  as  a  whole,  in  a  way  that  probably  would  not 
otherwise  have  been  possible.  This  joint  control  has 
characterized  the  movement  since  its  start.  And  since  its 
start  the  joint  control  has  actually,  whatever  the  form,  been 
exercised  by  the  Counsel  and  the  managers  of  the  larger 
and  more  successful  societies  or  subordinate  leagues.  The 
Universal  Federation  has  the  structure  of  a  democracy,  but 
the  movement  has  never  been  one  of  pure  democracy.  Rathef 
it  has  been  a  democracy  managed  by  an  aristocracy  of  the 
most  efficient.  i 


^8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [98 

The  Secretariat  and  later  the  Universal  Federation  were 
workable  in  part  because  these  leaders  of  the  second  grade 
were  recognized.  But  it  was  drawn  together  not  merely 
because  of  the  stated  desire  to  discuss  their  experience  and 
common  purposes,  but  because  there  was  already  a  definite 
common  need  and  purpose.  The  banks  were  determined  to 
secure  a  special  statute  which  would  legalize  the  cooperative 
form  of  business  organization.  For  this  purpose  they 
needed  a  skilled  lobbyist.  And  as  the  lobbyist  they  picked 
Schulze-Delitzsch;  then  having  elected  him  they  supported 
him  in  many  of  his  political  efforts. 

In  the  previous  chapter  this  changing  relation  betweea 
Schulze-Delitzsch  and  his  banks  was  not  mentioned.  But 
it  is  worth  while  to  remember  that  there  was  this  other  side. 
The  movement  is  by  no  means  a  one-man  achievement.  Up 
to  perhaps  1873  the  initiative  came  largely  from  the  leader. 
But  after  that  date  it  seems  more  in  accordance  with  the 
facts  to  say  that  the  Counsel  presided  over  a  movement 
which  many  led.  Never  since  the  early  seventies  has  the 
movement  been  dominated  by  any  one  individual.  It  has 
outgrown  one-man  control. 

The  events  in  the  first  period  of  the  movement's  history,. 
1 852- 1 883,  have  been  already  presented  in  connection  with 
Schulze-Delitzsch' s  life.  They  need  only  to  be  summarized 
here.  The  thirty-one  years  may  be  divided  into  four 
shorter  periods.  The  first  of  these  (1852-1859)  was  that 
which  preceded  formal  organization.  The  second  (1859- 
1867)  was  a  time  when  all  other  efforts  were  subordinated 
to  the  task  of  getting  a  special  protective  statute. 

This  statute  of  1867  with  its  amendment  in  1868  form  a 
turning  point  in  the  movement's  history.  Up  until  this 
time  any  member  might  be  sued  for  the  debts  of  the  bank. 
Any  borrower  could  be  compelled  by  depositors  to  repay, 
not  only  his  own  debt,  but  all  debts  which  the  bank  had  conr 


C,9]  THE  SCHULZE-DELITZSCH  MOVEMENT  99 

tracted.  Naturally  creditors  would  at  once  pick  out  the 
richer  members  and  sue  them  if  the  bank  got  into  difficulties. 
Knowing  this,  men  with  property  for  the  most  part  refused 
to  join.  The  statute  of  1867  provided  that  creditors  of  a 
bankrupt  society  might  sue  individual  members  only  after 
the  bank's  own  property  had  proved  to  be  insufficient.  The 
amendment  of  1868  left  the  creditors'  rights  unchanged;  but 
provided  an  administrative  procedure  by  which  the  deficit 
of  a  defunct  bank  was  divided  evenly  and  collected  by  the 
receiver  in  bankruptcy.  The  superior  advantage  to  the 
creditor  in  thus  being  spared  the  expense  of  a  law  suit,  if 
he  so  desired,  practically  stopped  all  suits  against  individual 
members.  To  individual  members  this  meant  not  only 
freedom  from  the  annoyance  and  expense  of  law-suits  in 
case  of  bankruptcy,  but  also  freedom  from  the  danger  of 
being  compelled  individually  to  pay  off  the  bank's  entire 
debt  and  then  taking  their  chances  on  being  able  to  collect 
from  the  other  members.  A  member  now  was  liable  only 
for  his  share  of  the  deficit  plus  a  fair  proportion  of  the 
additional  payments  made  necessary  by  the  inability  of 
some  members  to  pay  their  full  share.^ 

Furthermore,  up  until  this  time,  members  of  a  cooperative 
society  who  thought  the  society's  affairs  were  being  mis- 
managed, had  no  good  way  of  escaping  the  liabilities  whicli 
bankruptcy  would  involve.  They  might  resign ;  but  this, 
unfortunately,  would  not  terminate  their  connection  with 
the  society's  debts.  In  at  least  one  German  state  this  liabil- 
ity endured  for  thirty  years  after  the  member's  resignation. 
Now  it  was  provided  that  a  member  who  resigned,  should 
be  liable  only  if  bankruptcy  occurred  before  his  resignation. 
Thus  if  a  man  now  thought  that  his  bank  was  badly  man- 
aged he  could  get  out.     For  these  reasons  men  with  pro- 

1  Cf.  W.  Wygodzinski,  op.  cit.,  p.  32. 


lOO  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [loo 

perty  no  longer  feared  to  join.  Lassalle's  attacks  had 
made  the  movement  popular  with  them.  Thus  the  people's 
bank  now  ceased  to  be  an  institution  primarily  for  the  pro- 
pertyless  and  poor.  It  began  to  include  all  classes,  except- 
ing only  the  land-holding  aristocracy  and  the  very  weal- 
thiest business  men.  \ 
The  period  from  1867  to  1873  was  the  time  when  the 
movement  was  thus  changing  its  character  most  rapidly, 
although  the  change  had  started  some  years  earlier.  Dur- 
ing this  time  the  general  business  revival  had  also  brought 
increasing  prosperity  to  those  who  were  already  members, 
the  master  artisans  and  the  petty  tradesman.  Thus  by 
1873  the  whole  movement  had  a  distinctly  middle-class  tone 
and  viewpoint.  These  years  from  1867  to  1873,  it  will  be 
remembered,  were  called  by  Finck  the  *'  flowering  season  " 
of  the  Schulze-Delitzsch  movement.  Certainly  they  were 
years  of  of  extraordinary  growth  and  prosperity.  Almost 
the  only  untoward  event  during  this  period  was  the  with- 
drawal of  the  Austrian  people's  banks  from  the  ranks  of 
the  Universal  Federation.  These  had  joined  at  the  first 
meeting  held  in  Weimar  and  had  remained  loyal  members 
of  the  federation  even  through  the  Seven  Weeks  War. 
But  the  formation  of  the  German  Empire  changed  the 
situation.  Up  until  that  time  the  Universal  Federation  had 
included  delegates  from  banks  in  many  independent  sov- 
ereign states.  After  1871  all  of  these  but  Austria  were 
included  within  the  German  Empire.  Thus  in  1872  the 
Austrian  societies  organized  a  separate  federation  under 
their  own  leader,  Ziller.^  One  result  of  the  formation  of 
this  new  federation  was  the  Austrian  Cooperative  Law  of 
1873,  This  statute  furthermore  made  a  distinct  contribu- 
tion to  the  movement.  Permission  was  given  to  form 
cooperative  societies  with  limited  liability. 

1  Herrick  and  Ingalls,  Rural  Credits,  p.  z^- 


lOi]  THE  SCHULZE-DELITZSCH  MOVEMENT  lot 

The  final  years  (1873- 1883)  of  Schulze-Delitzsch's  ser- 
vices as  Counsel  were  characterized  by  continued  growth 
among  the  people's  banks,  but  also  by  the  panic  of  1873,  by 
hard  times  and  by  bankruptcies.  They  were,  furthermore, 
marked  by  the  rapid  growth  of  a  rival  cooperative  move- 
ment and  by  the  preliminary  stages  of  an  apparently  losing 
fight  over  the  amendment  of  the  cooperative  law. 

Such  was  the  situation  when  Schulze-Delitzsch  died  and 
Schenck  was  appointed  Counsel  in  his  stead.  The  latter 
took  up  a  discouraging  burden.  He  followed  too  brilliant 
a  predecessor  into  a  fight  which  even  that  brilliant  leader 
was  apparently  losing.  He  could  not  command  the  same 
united  support  within  his  own  federation,  and  outside  the 
federation  there  was  this  rapidly  growing  rival  cooperative 
movement  endorsed  by  the  Conservatives.  The  Progres- 
sive party,  which  had  rendered  such  service  to  Schulze- 
Delitzsch,  was  dying;  and  Bismarck  was  again  cooperating^ 
with  Conservative  and  Centrist  parties,  both  of  which  were 
hostile  to  the  general  policies  of  laissez-faire  for  which  the- 
members  of  the  people's  banks  had  stood.^ 

Like  his  predecessor  in  office,  Schenck  secured  election  to- 
the  Reichstag.  In  1884  the  Reichstag  at  last  completed  its 
work  on  the  law  governing  joint-stock  corporations.  It 
was  then  ready  to  take  up  the  statute  regulating  coopera- 
tive societies.  Three  years  later  a  special  committee  of 
eighteen  was  appointed.  Among  those  appointed  to  this 
committee  were  Counsel  Schenck  and  four  of  the  managers 
of  subordinate  leagues  in  the  Universal  Federation.  This 
committee  prepared  its  report  and  submitted  a  bill.  Instead 
of  acting  upon  it  at  once,  the  Bundesrat  published  the  re- 
port. A  year  of  acrimonious  criticism  followed.  Finally 
the  statute  of  May  i,  1889  was  passed,  whose  features  are 
so  important  that  they  require  some  special  consideration.     , 

1  R.  Finck,  op.  cit.,  p.  104. 


102  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [io2 

The  introduction  of  limited  liability  was  probably  the 
issue  about  which  the"  bitterest  battle  raged.  Switzerland, 
Belgium  and  Austria  already  permitted  the  cooperative  banks 
subject  to  their  law  to  limit  their  members'  liability  if  they 
so  chose.  In  Germany  the  disastrous  effects  of  unlimited 
liability  during  the  hard  times  of  the  middle  seventies  gave 
the  Conservatives  and  many  of  Schulze-Delitzsch's  own 
associates  reason  for  demanding  a  change.  But  Schulze- 
Delitzsch  had  at  first  opposed  the  introduction  of  this  new 
form  for  three  reasons.  In  the  first  place  he  felt  that  credi- 
tors should  not  be  asked  to  share  the  risks  of  the  enterprise. 
To  this  his  opponents  replied  that  so  long  as  depositors 
were  receiving  interest  at  rates  higher  than  were  offered  by 
public  savings  banks,  this  extra  interest  could  fairly  be  re- 
garded as  payment  for  the  assumption  of  some  risk.  In 
the  second  place  Schulze-Delitzsch  felt  that  the  banks  would 
liave  better  credit  if  their  members'  liability  were  un- 
limited. The  movement  had  grown  great  under  a  regime 
'Of  unlimited  liability.  Now  he  felt  it  would  be  unwise  to 
^change.  To  this  his  critics  replied  that  the  early  coopera- 
tive societies  had  indeed  needed  unlimited  liability.  With- 
out it  they  could  not  have  borrowed  at  all.  But  that  con- 
dition no  longer  prevailed.  The  capital  they  had  accumu- 
lated during  the  last  generation  now  satisfied  creditors.  The 
repeated  conversions  of  cooperatives  into  joint  stock  cor- 
porations were  cited  to  prove  this  contention.  Furthermore, 
they  pointed  out  that  there  were  some  cooperative  societies 
in  existence,  such  as  the  cooperative  stores,  which  never 
had  needed  to  have  their  credit  propped  up  by  the  institu- 
tion of  unlimited  liability  for  members.  Finally,  Schulze- 
Delitzsch  thought  that  the  institution  of  limited  liability 
would  tend  to  lessen  the  interest  of  members  in  the  fate 
of  a  bank.  They  would  do  less,  for  example,  to  prevent  a 
.threatened  bankruptcy.     This  decline  in  interest  has  in  fact 


I03]  ^^^  SCHULZE-DELITZSCH  MOVEMENT  103 

occurred,  but  it  probably  was  inevitable  in  any  case.  It 
has  probably  been  chiefly  due,  Finck  thinks,  to  the  growth 
in  the  size  of  banks  and  the  consequent  decline  of  the  in- 
fluence of  any  one  member  upon  the  bank's  affairs/ 

In  the  conventions  of  1871  and  1879  the  Universal  Federa- 
tion had  voted  for  the  legal  exclusion  of  limited  liability. 
But  the  growth  of  a  very  determined  minority  which 
threatened  to  undermine  his  authority,  compelled  Schulze- 
Delitzsch  in  the  winter  of  1879- 1880  to  change  his  posi- 
tion. In  the  convention  which  occurred  in  the  summer  of 
1880  the  Universal  Federation  still  insisted  on  unHmited 
liability  in  spite  of  the  counsel's  new  views.  But  in  1881 
although  it  still  affirmed  its  belief  in  unlimited  liability,  it 
voted  to  permit  its  Counsel  to  agree  to  a  compromise  which 
included  the  granting  of  permission  to  societies  to  organize 
with  limited  liability  if  they  so  chose.  The  story  of  this 
change  illustrates  well  the  case  where  a  determined  minority 
enforced  its  will  upon  the  Federation's  Counsel  as  well  as 
upon  a  less  interested  and  upon  a  less  determined  majority. 
The  minority  in  this  case  was  composed  chiefly  of  the  co- 
operative stores  which  of  course  needed  to  borrow  but  little, 
and  some  of  the  wealthier  cooperative  banks  whose  capital 
was  now  such  that  they  no  longer  needed  to  offer  creditors 
the  additional  security  of  unlimited  liability. 

The  statute  of  1889  therefore  permitted  the  organization 
of  societies  with  limited  liability.  This  form  immediately 
was  adopted  by  some  of  the  cooperatives  and  its  use  has 
grown  steadily  since  that  time.  By  1906  there  were  in 
Germany  7,712  cooperative  societies  of  all  types  with 
limited  liabilty.  These  contained  1,745,000  members.  At 
the  same  time  there  were  16,784  cooperative  societies  with 
unlimited    liability    containing    1,887,500.^     Thus    within 

1  R.  Finck,  op.  ciL,  p.  108. 
^R.  Finck,  op.  cit.,  p.  106. 


I04  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [104 

seventeen  years  of  its  first  authorization  about  a  third  of 
all  the  cooperative  societies  and  about  one  half  of  all  the 
members  had  adopted  the  new  form.  If  our  discussion  be 
limited  to  the  banks,  however,  it  will  be  found  that  the  per- 
centage with  unlimited  liability  is  still  much  the  larger.^ 

Societies  with  limited  liability  naturally  are  far  more  in 
need  of  capital  than  are  organizations  of  the  older  type. 
Therefore  the  law  now  permitted  a  member  to  purchase 
more  than  one  share.  The  maximum  number  of  shares 
which  can  be  held  by  any  one  member  is  to  be  limited  by  the 
constitution  of  each  society.  But,  thus  far  at  least,  this 
limitation  has  been  a  matter  chiefly  of  academic  interest.  In 
most  cases  it  has  not  been  easy  to  induce  members  to  buy 
extra  shares.  A  member  has  only  one  vote  regardless  of 
his  shareholdings.  A  member*s  line  of  credit  with  the  bank 
is  not  limited  by  his  shareholdings,  but  by  his  estimated 
ability  to  pay.  The  only  inducements  to  purchase  addi- 
tional shares  are  the  additional  dividends.  But  with  each 
share  which  he  purchases  the  member  must  assume  a  pro- 
portionally increased  liability.  There  is  thus  a  good  reason 
for  not  purchasing  too  many  shares.  i 

The  amount  of  additional  liability  which  a  member  must 
assume  with  each  additional  share  purchased  is  regulated 
by  the  constitution  of  the  particular  society,  subject  only  to 
the  general  legal  restriction  that  the  additional  liability  may 
not  be  less  than  the  amount  of  the  member's  share.  The 
purpose  of  this  restriction  is  to  compel  the  society  to  re- 
main a  true  cooperative.  If  the  liability  were  trifling,  the 
temptation  to  run  the  society  as  a  practical  business  pro- 
position and  for  immediate  profits,  would  be  greater.  This 
practical  money-making  attitude  is  not  by  any  means  elimi- 
nated by  this  legal  rule,  but  it  is  thus  held  somewhat  in  check. 

iH.  W.  Wolff,  People's  Banks  (London,  1919),  p.  161. 


I05]  THE  SCHULZE-DELITZSCH  MOVEMENT  105 

The  second  innovation  in  the  statute  of  1889  was  the 
introduction  of  a  third  cooperative  type, — ^the  society  with 
unHmited  contributory  liabihty.  This  differed  from  the 
ordinary  society  with  unHmited  HabiUty  only  in  the  fact  that 
in  this  form  creditors  have  no  right  to  sue  individual  mem- 
bers for  a  bank's  debts,  such  suits  may  be  instituted  by  the 
receiver  only,  and  then  only  for  the  amount  needed  from  that 
member  to  make  up  his  share  of  the  deficit,  after  allow- 
ance has  been  made  for  those  who  cannot  pay.  On  paper 
this  sounds  like  an  important  distinction.  In  fact  it  has 
1>een  unimportant.  The  statue  of  1889  provided  that 
creditors  of  societies  with  unlimited  liability  could  sue  in- 
dividual members  only  after  the  lapse  of  three  months  from 
the  time  when  the  receiver  made  this  assessment.  This, 
coupled  with  the  inevitable  expense  of  suing,  has  caused 
most  creditors  to  just  wait  until  the  receiver  had  collected 
his  assessment  and  was  ready  to  pay  all  alike.  The  chief  pro- 
tection of  members  is  from  spite  suits — and  these  unfortu- 
nately can  be  started  on  other  grounds  as  well.  Actually 
the  extra  protection  afforded  members  is  small.  On  the 
other  hand  the  unusual  word  appearing  in  the  title  of  a 
society  of  the  unlimited  contributory  liability  type,  is  pro- 
bably something  of  a  handicap  in  securing  deposits.  FeW 
societies  have  adopted  this  form. 

The  third  change  introduced  by  the  statute  of  1889  was 
the  legal  requirement  that  each  bank  must  have  a  share 
capital  and  that  members  must  also  l^e  stock-holders.^ 
This  policy  of  the  Schulze-Delitzsch  banks  had  been  bitterly 
opposed  by  some  other  cooperative  leaders. 

The  fourth  change  in  the  new  statute  was  stated  in  the 
following  words : 

Cooperative  societies  where  the  purpose  of  the  enterprise  is 

•    1  W.  Wygodzinski,  op.  cit.,  p.  63  et  seq. 


Io6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [io6 

the  granting  of  loans,  may  not  extend  their  business,  in  so  far 
as  this  consists  of  the  granting  of  loans,  in  accordance  with  that 
purpose,  to  persons  other  than  members. 

Grants  of  loans,  which  are  only  for  the  purpose  of  investing 
surplus  cash,  do  not  fall  under  this  prohibition. 

The  Erfurt  convention  of  1888  opposed  this  and  Counsel 
Schenck  characterized  it  as  ^'  unjustified  and  purposeless  ". 
But  the  only  change  v^hich  opponents  of  the  provision 
secured  was  in  the  penalty  imposed.  Violations  of  this 
provision  are  not  punished  by  the  dissolution  of  the  society, 
but  by  penalties  imposed  upon  the  officers  personally.  The 
effect  of  the  adoption  of  this  provision  was  that  some  of 
the  cooperative  societies  changed  into  joint  stock  corpora- 
tions in  order  to  avoid  losing  profitable  business  with  non- 
members.  Some  of  these  small  corporations  have  survived 
and  have  continued  to  serve  well  the  small  borrowers  of 
their  localities.^ 

The  fifth  change  lay  in  the  series  of  minor  amendments 
whose  purpose  was  to  make  the  date  of  entrance  and  de- 
parture from  cooperative  societies  more  definite.  The 
board  of  officers  was  now  ordered  to  attend  to  the  registra- 
tion of  members.  Legal  membership  dates  from  the  close 
of  the  following  business  year.  Legal  withdrawals  date 
from  the  close  of  the  first  business  year  whose  close  comes 
at  least  three  months  after  the  official  registration.^  \ 

Furthermore  the  general  assembly  was  now  required  to 
set  a  limit  to  the  total  liabilities  which  the  officers  might 
assume  on  behalf  of  the  society  and  also  a  limit  to  the  size 
of  the  total  loans  to  any  one  member.  , 

The  statute  also  provided  that  the  board  of  officers  must 
consist  of  at  least  two  members  and  that  all  of  its  actions 

1 R.  Finck,  op.  cit.,  p.  121. 

*  R.  Finck,  op.  cit.,  p.  123  et  seq. 


I07]  THE  SCHULZE-DELITZSCH  MOVEMENT  joy 

must  be  vouched  for  by  the  signature  of  at  least  two  mem- 
bers. The  general  assembly  was  given  the  right  to  limit 
the  authority  of  this  board  through  their  by-laws,  but  such 
limitations  were  not  to  affect  the  validity  of  contracts  un- 
dertaken with  non-members. 

The  eighth  innovation  lay  in  the  legal  requirement  that 
the  general  assembly  elect  a  board  of  supervisors  as  well  as 
a  board  of  officers.  The  statute  of  1867  had  compelled  the 
people's  banks  to  entrust  a  very  large  amount  of  authority 
to  the  bank's  officers,  but  it  had  made  no  adequate  pro- 
vision for  supervising  them.  The  preceding  provision 
with  regard  to  the  duties  of  the  general  assembly  was  for 
this  purpose.  It  merely  added  the  authority  of  law  to  a 
custom  already  common.  So  in  this  case  the  law-makers 
found  that  many  cooperatives  were  beginning  to  appoint 
boards  of  supervisors,  whose  special  duty  it  was  to  watch 
over  the  manner  in  which  the  officers  conducted  the  bank's 
affairs.  The  statute  now  extended  this  practice  and  made 
it  compulsory  for  all. 

The  ninth  change  made  in  the  law  also  was  designed  to 
hold  the  officers  to  account.  This  change  lay  in  the  intro- 
duction of  a  compulsory  legal  audit.  The  United  States 
with  its  earlier  use  of  bank  credit  had  introduced  the  prin- 
ciple of  compulsory  examination  more  than  quarter  of  a 
century  earlier.  But  in  Germany  the  idea  precipitated  a  great 
fight.  Audit  by  regular  accountants  was  already  common 
in  the  Schulze-Delitzsch  people's  banks.  But  the  idea  of 
legal  compulsion  aroused  bitter  opposition.  Schulze- 
Delitzsch  had  opposed  it ;  Schenk  opposed  it ;  the  Universal 
Federation  opposed  it.  The  convention  at  Erfurt  (1888)^ 
declared  against  bank  examiners  and  all  other  forms  of 
government  interference.  Representatives  of  the  people's 
banks  declared  that  if  the  government  was  going  to  appoint 
examiners,  it  ought  to  assume  the  risks  and  losses  which 


Io8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [io8 

might  result  from  faulty  examination.  The  storm  of  pro- 
test did  have  one  result.  The  original  proposal  was  modi- 
fied in  that  societies  might  avoid  the  government  audit  by 
providing  for  proper  examinations  of  their  own.  Any 
bank  might  join  a  league  whose  purpose  it  was  to  audit  its 
members'  acounts.  Such  a  league  might  do  no  business  on 
its  own  account,  and  it  must  prove  that  it  was  capable  of 
performing  its  duties  properly.  But  if  it  met  these  require- 
ments, its  examinations  were  to  be  accepted  in  place  of  gov- 
ernment audit.  The  bank's  supervisors  were  ordered  to 
take  part  in  the  audit.  The  audit  must  occur  at  least  once 
in  every  two  years.  Its  results  must  be  reported  to  the 
general  assembly. 

The  last  of  the  series  of  important  innovations  made  by 
the  statute  of  1889  was  the  permission  given  to  cooperative 
societies  to  join  other  cooperative  societies.  With  this  was 
given  by  implication  the  permission  to  form  societies  whose 
membership  consisted  exclusively  of  other  cooperative 
societies.  Such  organizations  are  known  as  central  co- 
operative societies,  or  more  briefly  as  cooperative  centrals. 

These  cooperative  centrals  must  be  distinguished  sharply 
from  the  cooperative  leagues  on  the  one  hand  and  the 
federations  on  the  other.  The  cooperative  central  does 
business  as  does  any  other  cooperative  society.  It  is  sub- 
ject to  the  same  law.  If  it  is  a  central  cooperative  credit 
society,  it  may  not  make  loans  to  any  one  except  members, 
i.  e.  local  cooperative  societies.  It  also  must  be  audited  and 
for  that  purpose  may  join  an  audit  league.  These  audit 
leagues  on  the  other  hand  are  the  subordinate  leagues  of 
the  great  federations.  Their  purpose  is  to  supply  the  re- 
quired examiners,  to  give  advice,  sometimes  even  supply 
attorneys  to  represent  members.  These  audit  leagues  are 
recognized  in  the  law  and  regulated  as  a  separate  institu- 
tion. Finally  the  federations  do  the  work  of  political  re- 
presentation, gathering  information  and  publishing  it. 


109]  ^^^  SCHULZE-DELITZSCH  MOVEMENT  109 

Schulze-Delitzsch  and  his  followers  opposed  the  organi- 
zation of  centrals.  They  felt  that  the  liability  which  a 
member  assumed  on  entering  a  people's  bank  was  all  that 
any  man  ought  to  assume.  If  then  this  bank  were  to  join 
a  cooperative  central,  there  would  be  two  organizations  in- 
volved and  mismanagement  of  either  one  of  these  could 
cause  bankruptcy,  and  the  suffering  which  that  entails.  It 
seemed  to  him  to  be  an  unnecessary  risk.  And  for  the 
Schulze-Delitzsch  people's  bank  such  was  indeed  the  case. 
The  Schulze-Delitzsch  plan,  it  will  be  remembered,  called 
for  large  societies,  located  in  a  town  or  city  and  including 
within  its  membership  men  from  all  occupations.  The 
urban  location  should  put  the  bank  in  touch  with  people 
who  had  money  to  deposit.  If  the  bank  were  well  managed, 
it  could  then  presumably  attract  a  pretty  stable  set  of  de- 
posits. With  a  varied  membership,  the  demand  for  loans 
should  be  pretty  well  distributed  throughout  the  year  and 
there  would  be  no  great  need  of  regular  seasonal  borrowing 
from  a  central.  Temporary  loans  to  meet  exceptional  de- 
mands could  be  supplied  by  some  neighboring  people's  bank 
or  by  the  Federation's  central  institution,  the  Soergelbank. 

Under  these  conditions  Schenck  and  his  associates  in  the 
Universal  Federation  felt  not  only  that  they  did  not  desire 
to  have  their  own  banks  assume  the  risk  of  membership  in 
cooperative  centrals,  but  also  they  did  not  desire  to  have 
the  reputation  of  the  whole  cooperative  movement  endan- 
gered by  the  existence  of  such  institutions.  In  this  effort 
to  prevent  the  new  form  they  were  again  defeated.  In  fact 
the  record  of  the  fight  shows  many  defeats.  But  on  the 
other  hand,  many  changes  desired  by  Schenck's  opponents 
were  defeated.  One  famous  bill  offered  by  a  Conservative 
leader  proposed  twenty-one  amendments.  Not  one  of  these 
was  adopted  in  its  entirety.  Thus  perhaps  the  honors  were 
divided  evenly.     But  of  the  various  changes  which  were 


no  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [no 

made  practically  the  only  two  which  were  the  direct  results 
of  the  agitation  of  Schenck  and  his  associates  were  the 
compulsory  introduction  of  share  capital  and  of  supervisors. 
Thus  the  situation  was  very  different  from  that  in  1867I 
when  one  man,  Schulze-Delitzsch,  had  virtually  written  the 
entire  statute.  The  difference  was  caused  by  three  facts. 
In  the  first  place  Bismarck  was  not  in  need  of  an  amnesty 
bill  and  of  a  general  reconciliation.  In  the  second  place 
the  very  success  of  the  cooperative  movement  had  caused 
so  many  people  to  be  involved,  that  no  one  group  could 
hope  to  dominate  within  it.  In  the  thircl  place,  in  the 
political  arena  outside  of  the  cooperative  movement,  an 
alliance  which  included  the  Conservative  party  was  in  the 
saddle.  Considering  these  facts  Counsel  Schenck  and  his 
associates  did  extremely  well  in  their  fight.  Even  if  they 
did  not  get  just  what  they  wanted,  they  probably  came 
closer  to  their  objectives  than  any  other  single  group.  And 
that  is  saying  a  great  deal  for  a  movement  which  was  no 
longer  favored  by  the  political  situation  of  the  times. 
Judged  from  this  distance  Schenck  and  his  associates 
fought  a  good  fight. 

This  statute  of  1889  is  of  great  importance.  It  was 
amended  in  1896  and  again  in  1898,  but  these  amendments 
left  the  general  structure  of  the  German  cooperative  socie- 
ties unchanged.  This  statute  of  1889  is  important  also 
because  it  has  furthermore  apparently  formed  the  basis 
from  which  the  law-givers  of  other  countries  have  started 
in  their  efforts  to  fashion  appropriate  legislation  for  their 
own  lands.  This  statute  is  a  real  landmark  in  cooperative 
history.  It  has  won  general  regard  as  a  real  masterpiece  in 
legislation. 

The  enactment  of  this  statute  was  followed,  it  will  be  re- 
called, by  the  transformation  of  many  banks  from  the  co- 
operative form  into  joint  stock  corporations.     In  the  year 


Ill]  THE  SCHULZE-DELITZSCH  MOVEMENT  1 1  j 

1889  alone  there  were  no  less  than  149  such  transforma- 
tions. As  has  been  said,  these  transformations  were  made 
chiefly  in  order  to  keep  profitable  business  with  non-mem- 
bers. Furthermore  many  cooperative  societies  simply 
ceased  to  register.  They  thus  became  mere  voluntary  as- 
sociations, with  only  the  legal  rights  of  such  associations. 
These  forfeitures  of  the  rights  of  registered  societies  were 
largely  to  avoid  the  legal  examinations  and  the  expense  they 
involved.  But  on  the  other  hand  the  law  was  followed  by 
a  great  increase  in  the  membership  of  the  Universal  Federa- 
tion. Audit  by  subordinate  leagues  promised  to  be  cheaper 
and  more  satisfactory  than  audit  by  special  examiners  ap- 
pointed by  the  court,  and  for  this  reason  many  banks 
joined  the  subordinate  leagues  and  thus  incidentally  the 
Universal  Federation  also.  Thus  in  spite  of  very  con- 
siderable losses  the  report  of  the  next  year  showed  an  in- 
crease in  the  Federation's  membership  amounting  to  no  less 
than  289  societies.^ 

The  autumn  of  1889  was  marked  by  a  severe  stringency 
in  the  money  market  and  by  the  dissolution  of  the  second 
rival  of  the  Universal  Federation's  pet  Soergelhank.  The 
Rhenish-Westphalian  Cooperative  Bank  of  Cologne  had 
been  established  in  1871  because  of  discontent  with  the 
conservative  policy  which  the  Soergelhank  had  adopted  with 
the  approval  of  Schulae-Delitzsch  and  the  Universal  Federa- 
tion. The  Rhenish  Westphalian  bank  now  disappeared. 
But  any  possible  satisfaction  to  be  obtained  from  this  event 
was  wiped  out  by  the  difficulties  which  the  Soergelhank  was 
itself  facing  and  the  impending  creation  of  a  new  and  more 
powerful  rival,  the  Prussian  Government  Central  Coopera- 
tive Bank. 

The  next  few  years  of  Schenck's  counselship  seem  to  have 

1  R.  Finck,  op.  cit.,  p.  129. 


112  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [112 

been  largely  occupied  in  the  fruitless  effort  to  prevent  the 
establishment  of  this  state  institution.  This  fight  was  con- 
ducted not  in  the  Imperial  Reichstag,  but  in  the  Prussian 
Landtag.  It  created  a  considerable  excitement  in  the 
Schulze-Delitzsch  movement,  but  the  defeat  of  their  cause 
in  this  case  affected  members  of  the  Universal  Federation 
relatively  little — apart  from  matters  of  pride  and  principle. 
The  Prussian  Government  Central  Cooperative  Bank  has 
apparently  benefited  the  Schulze-Delitzsch  banks  not  at 
all  and  has  apparently  injured  them  only  in  their  feelings. 
The  description  of  this  dispute  may  then  be  reserved  for  our 
next  topic  which  is  the  general  subject  of  state  aid  for  urban 
cooperative  banks. 


CHAPTER  VII 
State  Aid  and  the  Hauptverband 

By  1885  there  were  in  Germany  three  federations  of  co- 
operative societies.  In  the  first  place  there  was  the  Uni- 
versal Federation  of  Self- Supporting  Cooperative  Societies, 
Schulze-Delitzsch's  organization,  whose  history  we  have 
been  following.  In  the  second  place  there  was  the  General 
Federation  of  Rural  Cooperative  Societies.  This  had  been 
formed  by  F.  W.  Raiffeisen,  a  man  who  had  taken  the 
Schulze-Delitzsch  plan  and  remodelled  it  to  meet  the  needs 
of  rural  cooperators.  Third  and  last,  stood  the  Imperial 
Federation  of  Agricultural  Cooperative  Societies  organized 
by  W.  Haas  who  had  taken  the  Raiffeisen  plan  and  liber- 
alized it  to  meet  the  needs  of  a  rather  larger  group  of  farm- 
ers than  did  the  original  Raiffesen  scheme. 

The  situation  of  the  Schulze-Delitzsch  Federation  dif- 
fered strikingly  from  that  of  the  two  agricultural  federa- 
tions. The  people's  banks  of  the  Schulze-Delitzsch  Federa- 
tion were  substantially  able  to  meet  the  needs  of  their  bor- 
rowing members.  The  agricultural  cooperative  banks 
were  not.  The  Schulze-Delitzsch  people's  banks  of  course 
often  had  difficulty  in  raising  sufficient  capital  to  meet  the 
needs  of  their  applicants  for  loans.  But  that  difficulty  is 
at  some  time  or  other  the  common  lot  of  nearly  all  banks. 
The  people's  banks  felt  the  difficulty  somewhat  more  than 
the  ordinary  commercial  banks,  but  that  was  all.  The 
agricultural  banks  faced  a  much  more  serious  difficulty. 

In  the  first  place  their  members  were  borrowers  only. 
113]  113 


114  ^^^  EVOLUTION  OF  PEOPLE'S  BANKS  [114 

There  were  no  ''  creditor  members."  In  the  urban  people's 
banks  the  high  dividends  had  attracted  some  non-borrowers 
into  membership.  The  adoption  by  the  agricultural  banks 
of  a  policy  of  low  dividend  payments  had  excluded  from 
their  ranks  all  members  of  this  kind.  In  the  second  place 
the  village  communities  probably  contained  no  considerable 
number  of  people  with  surplus  capital  to  lend.  No  matter 
what  inducements  were  offered,  it  would  have  been  difficult 
to  find  creditor  members.  The  farmer  can  always  invest 
in  his  own  farm  any  surplus  he  may  have.  Wage-earners 
and  salaried  employees,  who  would  make  the  best  "  creditor 
members,"  were  relatively  scarce  in  rural  villages.  The 
village's  lack  of  capitalists,  who  had  no  business  of  their 
own  to  absorb  their  savings,  its  lack  of  salaried  or  wage- 
earning  savers,  was  reflected  also  in  the  related  difficulty 
of  attracting  deposits.  The  similarity  of  the  various  rural 
villages  prevented  any  of  the  village  banks  from  having  any 
large  surplus  to  lend  to  others.  Still  worse,  the  village  bor- 
rowers wanted  loans  that  ran,  not  for  three  months,  but 
for  periods  ranging  from  six  months  to  six  years.  Thus  the 
rural  banks  were  not  in  such  good  position  to  promise 
prompt  repayment.  Therefore  they  could  not  borrow, 
readily  from  the  commercial  banks. 

Under  these  conditions  the  leaders  of  some  of  the  agri- 
cultural banks  had  striven  in  1889  for  amendments  to  the 
cooperative  law  which  would  (i)  permit  corporations  and 
cooperative  societies  to  form  cooperative  centrals  which 
could  then  take  up  the  task  of  borrowing  for  their  member 
banks;  and  (2)  permit  adoption  of  limited  liability  for  co- 
operative societies.  But  even  after  the  bitter  fight  for  these 
amendments  had  been  won,  and  the  cooperative  centrals  had 
been  organized,  there  was  still  trouble  among  the  rural 
banks.  Some  capitalists  probably  were  afraid  of  this  new; 
legal   form  of  business  organization,   the  central  coopera- 


115]  ST  A  TE  AID  AND  THE  HA  UPTVERBAND  1 1 5 

tive  society.  But  there  was  another  and  much  more  serious 
difficulty.  The  new  cooperative  centrals,  or  at  least  a  con- 
siderable number  of  them,  seemed  none  too  eager  to  pay 
the  market  rate  of  interest  for  loans.  They  wanted  to  bor- 
row money  at  rates  which  would  let  them  re-lend  to  local 
banks  under  such  moderate  conditions  that  these  local  banks 
could  finally  again  re-lend  at  no  more  than  the  market  rate. 
Naturally  they  were  none  too  successful. 

In  the  years  from  1890  to  1893  ^^^  ^^  these  cooperative 
centrals  were  started  in  towns  pretty  well  distributed  over 
Germany;  Hanover,  Bonn,  Halle,  Neisse,  Wormditt  and 
Kempen.  All  these  institutions  suffered  more  or  less 
chronically  from  lack  of  capital.^  This  difficulty  is  per- 
haps less  significant  than  might  be  expected  in  view  of 
general  business  conditions  at  this  time.  The  panic  of  1890 
in  England  had  been  followed  by  a  real  crisis  in  Germany 
in  that  same  year.  Thus  fresh  capital  was  abnormally  dif- 
ficult to  secure  and  interest  rates  were  high  all  over  Germany 
in  1890."  By  1891  business  depression  had  started,  interest 
rates  were  normal  but  capitalists  were  not  hopeful.  1892 
saw  the  depression  well  under  way.  Business  men  were  no 
longer  eager  to  borrow  and  interest  rates  were  abnormally 
low.  Such  a  year  should  have  made  it  easy  for  new  bor- 
rowers, like  the  cooperative  centrals,  to  secure  all  the  capital 
they  desired,  if  their  security  were  good.  But  unfortunately 
the  financial  panic  of  1893  i^  ^^w  York  precipitated  a  new 
crisis  in  Berlin  and  capital  again  becamej  scarce.  It  was 
not  until  the  years  1894  and  1895  that  the  cooperative  cen- 
trals had  a  real  chance  to  get  started.  But  by  1895  the 
campaign  for  state  aid  was  again  under  way. 

It  seems  fair  to  the  supporters  of  this  campaign,  however, 

^  R.  Finck,  op.  cit.,  p.  137. 

2  W.  C.  Mitchell,  Business  Cycles,  p.  167. 


1,6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [ii6 

to  point  out  that  they  were  probably  right  in  their  funda- 
mental assumption  that  the  failure  of  the  new  cooperative 
centrals  to  secure  the  loans  they  needed  was  not  due  to  tem- 
porary causes,  but  to  more  fundamental  difficulties  such  as 
their  lack  of  owned  capital  and  their  low  interest  rates. 

This  lack  of  owned  capital  could  have  been  eliminated  if 
the  various  cooperative  centrals  (or  their  members)  had 
been  willing  to  go  through  the  slow  and  painful  process  of 
saving  and  accumulation.  But  to  raise  capital  by  this 
method  was  a  feat  equally  possible  of  accomplishment  by 
each  cooperative  local.  No  "  central ''  with  its  attendant 
membership-liability  and  risk  was  necessary  for  this  achieve- 
ment. All  that  would  be  necessary  was  time  and  the  re- 
quisite will-power  and  self-denial.  Now  the  cooperative 
centrals  had  been  organized  in  order  to  secure  capital  by 
some  easier  and  quicker  route.  Their  failure  to  secure  the 
desired  loans  from  the  commercial  market  was  thus  fol- 
lowed by  a  campaign  for  state-aid. 

In  the  spring  of  1895  a  Conservative  member  of  the  Prus- 
sian House  of  Representatives  brought  in  a  proposal  that  the 
state  set  aside  20  million  marks  for  loans  to  agricultural 
banks  at  a  rate  of  interest  not  to  exceed  2)^%.  A  some- 
what different  bill  was  presented  in  this  same  session  by 
Dr.  Arendt  and  a  group  of  Independent  Conservatives. 
This  second  bill  provided  for  the  creation  of  a  government 
loan  institution  as  a  central  source  of  credit  for  the  smaller 
farmers  and  artisans. 

On  May  3,  1895  the  government  announced  its  readiness 
to  undertake  the  drafting  of  a  law  to  this  effect.  For  this 
purpose  a  commission  was  to  be  appointed.  Then  to  clear 
the  way  for  the  work  of  this  commission  both  of  the  above 
bills  were  withdrawn.  On  May  18,  1895  the  Prussian 
Minister  of  Finance  summoned  his  commission  together.  It 
consisted  of  representatives  of  the  ministry,  of  the  Reichs- 


117]  STATE  AID  AND  THE  HAUPTVERBAND  ny 

bank  and  of  the  various  types  of  cooperation.  The 
genuine  need  of  some  better  method  of  securing  capital  for 
agricuhure  was  brought  out  forcibly.  A  state  institution 
whose  purpose  was  lending  money  to  cooperative  banks 
was  proposed  as  the  remedy,  and  all  members  of  the  com- 
mission agreed  to  this  program — except  the  representative 
of  the  Schulze-Delitzsch  movement,  Schulze-Delitzsch's  old 
friend  and  co-worker,  Parisius. 

The  work  of  this  commission  was  embodied  in  a  bill  pre- 
sented to  the  House  of  Representatives  by  the  Minister  of 
Finance,  Miquel,  on  June  i8,  1895.  The  bill  passed  its 
first  reading,  was  referred  to  the  budget-committee,  was 
approved  by  them  and  returned  to  the  house.  It  passed  its 
second  reading  July  2,  1895,  its  third  July  3,  1895  ^^^  was 
finally  put  into  effect  by  royal  proclamation  July  31,  1895. 
Two  months  later  the  Preussische-Central-Genossenschafts- 
Kasse,  or  Preussenkasse,  opened  its  doors. 

This  Preiissenkasse,  or  Prussian  Central  Bank  for  Co- 
operative Societies,  was  created  as  an  out-and-out  gov- 
ernment institution.  It  was  to  be  managed  by  a  board  of 
directors  who  were  to  be  appointed  by  the  king  on  nomina- 
tion from  the  ministry,  and  these  directors  were  to  hold 
office  for  life. 

The  statute  of  1895  provided  that  the  state  should  con- 
tribute to  the  share  capital  of  this  institution  5,ooo,cxx) 
marks  payable  in  Prussian  government  three  per  cent  bonds. 
It  was  also  provided  that  cooperative  centrals  could  pur- 
chase shares.  It  soon  developed  that  the  cooperative  cen- 
trals had  little  surplus  capital  to  invest.  But  even  if  they 
had  had  large  amounts,  it  is  not  likely  that  they  would  have 
invested  much  in  the  stock  of  the  Preussenkasse  for  three 
reasons.  In  the  first  place  the  government's  stock  had  been 
paid  for  in  bonds  which  were  worth  less  than  par.  In  the 
second  place  the  purchase  of  stock  gave  the  holder  no  con- 


Il8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [ng 

trol  over  the  affairs  of  the  Preussenkasse  nor  any  specially 
favored  position  as  a  borrower.  Borrowers  and  share- 
holders alike  could  participate  in  the  choice  of  an  advisory 
committee.  But  neither  class  was  especially  favored  even 
in  this  matter;  and  the  committee's  authority  was  advisory 
only,  not  mandatory.  Finally,  it  was  the  intention  of  the 
law  that  the  Preussenkasse  should  be  managed  primarily 
in  the  interest  of  its  customers,  not  of  its  stockholders. 
Net  earnings  then  would  probably  be  low  and  even  these 
earnings  were  by  statutory  requirement  to  be  devoted  largely 
to  increasing  the  bank's  surplus,  rather  than  to  paying  divi- 
dends. A  cooperative  central  could  lawfully  secure  a 
maximum  return  of  only  3^^%  a  year  by  investing  in  such 
stock.  A  share  subscription  would  bring  to  the  silbscriber 
the  reputation  of  being  ready  to  cooperate,  and  very  little 
else.  But  such  readiness  to  cooperate  with  the  new  institu- 
tion could  be  appropriately  shown  by  a  very  tiny  invest- 
ment. 

The  failure  of  the  cooperatives  to  participate  in  the 
Preiissenkasse  as  investors  is  to  be  sharply  contrasted  with 
the  eagerness  which  a  large  number  of  them  promptly  dis- 
played to  be  allowed  to  participate  as  borrowers.  There 
was  undoubtedly  a  great  need  for  more  capital  in  agriculture. 
Therefore  on  June  8,  1896  a  new  law  was  passed  by  which 
the  state  increased  its  investment  in  the  Preussenkasse  from 
5,000,000  marks  to  20,000,000  marks.  Even  this  sum  soon 
seemed  too  small  and  on  April  20,  1898  a  third  statute  in- 
creased the  state's  investment  to  50,000,000  marks.  Finally 
on  July  13,  1909  this  investment  was  increased  to  75,000,- 
000  marks.  This  last  increase  however  was  not  for  the 
purpose  of  extending  cooperation  in  general  or  of  benefiting 
existing  banks.  This  last  25,000,000  marks  was  to  be  used 
by  the  bank  for  the  purpose  of  aiding  in  the  Germanizing 
of  Prussian  Poland,  a  work  in  which  the  government  hoped 


up]  STATE  AID  AND  THE  HAUPTVERBAND  ng 

to  use  the  cooperative  movement.  Counting  all  of  these 
government  investments  and  also  the  purchases  of  stock 
made  by  the  various  cooperative  societies,  the  total  share 
capital  of  the  Preussenkasse  by  the  end  of  March,  191  o 
amounted  to  76,400,000  marks/ 

The  purpose  of  the  Preussenkasse  was  not  solely  to  supply 
loan-capital  for  agriculture.  Long-term  loans  at  least  were 
already  pretty  generally  available  to  farmers  in  most  parts 
of  Prussia  though  the  activities  of  the  Landschaften  and 
various  savings  institutions.  Short-term  loans  only  were 
needed.  But  these  in  the  opinion  of  the  Prussian  ministry 
were  needed  equally  by  the  petty  shopkeeper  and  artisan,  as 
well  as  by  the  peasant.  The  purpose  for  which  the  bank  was 
established  then  was  to  provide  capital  for  short  term  loans 
to  both  of  these  groups  of  borrowers.  To  take  Miquel's 
own  words :  ^ 

The  point  at  issue  here  is  the  encouragement  of  short  term 
borrowing,  and  that  in  this  case  for  the  middle  class  in  both  city 
and  country.  By  middle  class  I  mean  those  people  who  are  in 
business  at  their  own  risk  with  a  limited  capital  and  are  doing 
their  own  work.  .  .  . 

To  measure  the  success  of  the  Preussenkasse  in  using  this 
very  considerable  endowment  in  such  a  way  that  the  exten- 
sion of  the  practice  of  short  term  borrowing  throughout  the 
Prussian  kingdom  would  compensate  the  government  for 
the  cost  incurred  is  a  problem  of  considerable  importance. 
The  cost  incurred  by  the  government  of  course  has  not  been 
the  entire  75,000,000  marks  invested,  but  merely  the  dif- 
ference between  the  dividends'  which  the  government  has 

^  Wygodzinski,  op.  cit.,  p.  179. 

2  Speech  of  Finanzminister  iMiquel,  reports  in  Verhandlungsbericht 
des  Preussischen  Ahgeordnetenhauses,  1895,  P«  2409  et  seq.,  quoted  by 
Finck,  op.  cit. 

^  Finck,  op.  cit.,  p.  182. 


I20  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [120 

received  from  its  bank  stock  and  the  annual  interest  which 
the  government  has  been  compelled  to  pay  on  bonds  which  it 
gave  in  return  for  that  stock.  In  addition  to  this  there 
have  been,  of  course,  certain  other  costs.  The  bank  has 
absorbed  a  certain  portion  of  the  time  of  successive  ministers 
of  finance  and  other  officials. 

The  results  secured  by  the  Preussenkasse  have  been  very 
uneven.  In  the  field  of  urban  credit  the  Preussenkasse  ap- 
peared as  an  unwelcome  coadjutor.  The  Universal  Federa- 
tion through  both  Counsel  Schenck  and  Counsel  Criiger  had 
opposed  the  establishment  of  this  bank.  Fifteen  years  after 
the  establishment  of  the  Preussenkasse  the  Universal  Fed- 
eration of  Schulze-Delitzsch  Banks  was  still  to  be  found  in 
this  same  position  of  isolation  and  at  least  passive  hostility, 
and  the  title  of  that  organization  was  still  the  "  Universal 
Federation  of  the  German  Cooperative  Societies  Which  Rely 
Upon  Self -Help." 

This  separation  between  the  Preussenkasse  and  the  Uni- 
versal Federation  was  due  in  part  perhaps  to  the  policy  of 
the  Preussenkasse' s  directors.  They  decided  not  to  make 
loans  to  any  local  cooperative  societies,  but  only  to  co- 
operative centrals.  But,  it  will  be  recalled,  the  members  of 
the  Universal  Federation  were  bitterly  opposed  to  the  diffu- 
sion of  responsibility  which  membership  in  a  cooperative 
central  involved.  Counsel  Schenck  and  the  Universal  Fed- 
eration had  fought  the  introduction  of  those  sections  of  the 
Act  of  1889  which  had  permitted  the  creation  of  central  co- 
operative societies.  Twenty  years  after  the  passage  of  this 
statute  and  nearly  fifteen  years  after  the  creation  of  the 
Preussenkasse  there  were  within  the  Universal  Federation 
iDut  two  cooperative  centrals.  These  were  (i)  The  League 
Bank  for  East  and  West  Prussia  founded  at  AUenstein  in 
1897,  and  (2)  The  League  for  Cooperative  Societies  in 
Northwest  Germany  founded  at  Heide  in  Holstein  in  1898. 


121  ]  STATE  AID  AND  THE  HAUPTVERBAND  121 

Both  of  these  cooperative  centrals  were  located  in  regions 
predominantly  agricultural,  where  perhaps  ordinary  bank- 
ing accommodation  was  rather  more  difficult  to  secure. 
The  first  of  these  did  not  accept  aid  from  the  Preussenkasse. 
The  second,  located  in  Heide,  had  accepted  loans  from  the 
Preussenkasse.  But  this  cooperative  central  had  been 
joined  by  only  24  of  the  45  local  cooperative  societies  which 
are  united  in  the  audit  league  for  that  district/  Thus  fifteen 
years  after  the  Preussenkasse  opened  its  doors,  this  one 
small  organization  included  all  the  Universal  Federation's 
people's  banks  which  had  accepted  help  from  the  govern- 
ment institution. 

But  urban  cooperative  credit  has  never  been  exclusively 
confined  to  meml^ers  of  the  Universal  Federation,  and  since 
the  establishment  of  the  Pretissenkasse  especially,  urban  co- 
operative credit  institutions  outside  of  the  Universal  Federa- 
tion have  increased  in  importance.  But  this  more  recent 
growth  has  been  so  directly  a  product  of  the  Preussenkasse 
itself  that  it  must  be  considered  in  connection  with  the 
history  of  that  institution. 

The  story  of  the  Preussenkasse  up  to  the  Great  War  may 
be  conveniently  divided  into  two  periods;  1895  to  1898  and 
1898  to  1914. 

The  years  from  1895  to  1898  were  for  the  Preussenkasse 
a  period  of  rapid  expansion.  The  whole  bureaucracy  of  the 
Prussian  government  was  in  its  service  from  the  start. 
Special  lecturers  employed  by  provincial  or  county  officials 
travelled  up  and  down  the  land  spreading  the  gospel  of 
cooperation — all  at  government  expense.  Such  lecturers 
were  naturally  under  a  pressure  to  show  results.  Thus  co- 
operative societies  were  often  started  in  places  where  ap- 
parently there  was  little  need  for  such  organizations  and 

1  Finck,  op.  cit.,  p.  160. 


122  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [122 

where  there  was  perhaps  even  less  chance  that  such  organiza- 
tions could  be  well  officered  and  wisely  led.  Members  were 
even  enticed  away  from  existing  Schulze-Delitzsch  societies 
in  order  to  help  start  new  banks,  and  as  soon  as  seven  such 
banks  had  been  started,  a  new  central  was  organized  which 
immediately  applied  to  the  Preiissenkasse  for  a  loan. 

Whether  wise  or  not,  this  government  propaganda  was 
extraordinarily  successful  in  extending  cooperation  in 
general  and  the  influence  of  the  Preussenkasse  in  particular. 
Within  two  years  the  government  bank  had  succeeded  in 
attaching  to  itself  5,000  of  7,636  cooperative  societies  which 
by  that  time  were  operating  in  Prussia.  And  within  these 
5,000  societies  were  12%  of  all  the  farmers  in  Prussia.^ 

During  these  two  years  Counsel  Criiger  was  active  and 
bitter  in  his  attacks  upon  the  government  bank  and  its  policy. 
In  1898  the  Preussenkasse  was  compelled  to  curtail  its 
loans  somewhat,  and  immediately  a  storm  of  protest  arose 
from  a  different  quarter.  It  developed  that  the  loans  of 
the  cooperative  centrals  and  consequently  the  loans  of  the 
Preussenkasse  itself  were  on  good  security,  but  they  were 
not  liquid.  The  borrowers  could  repay  on  the  normal 
due  date  only  at  the  expense  of  a  considerable  loss  to  them- 
selves. Furthermore  they  had  come  to  look  upon  these 
loans  as  an  addition  to  their  investment  capital  and  felt 
entitled  to  renewals  as  long  as  the  security  was  good. 

With  this  experience  in  mind  the  policy  of  the  Preussen- 
kasse since  1898  has  been  much  more  conservative.  Its 
business  has  been  extended  less  rapidly.  New  cooperative 
societies  have  been  started  only  where  there  was  evidence  of 
real  need  and  where  it  seemed  possible  to  find  for  the  new 
banks  a  sufficient  number  of  officers  of  the  right  kind. 
Counsel  Criiger  consequently  has  become  less  bitter  in  his 

^  R.  Finck,  op.  cit.,  p.  174. 


123]  STATE  AID  AND  THE  HAUPTVERBAND  123 

opposition.  The  Preussenkasse  from  1898  up  to  the  Great 
War  contented  itself  with  the  more  humdrum  policy  of 
service. 

From  1899  to  1 910  it  was  the  policy  of  the  Preussenkasse 
to  lend  to  its  customers,  the  cooperative  centrals,  at  an 
average  rate  of  about  3^4%.  The  cooperative  centrals  in 
turn  lent  to  their  members,  the  individual  cooperative  banks, 
at  an  average  advance  of  about  one  half  of  one  per  cent. 
Thus  the  local  secures  at  4%  funds  which  it  in  turn  lends 
to  its  members,  the  real  borrowers,  at  not  less  than  4>4%. 
This  rate  to  the  ultimate  borrower  was  certainly  not  unduly 
high.  But  in  order  to  make  this  possible  and  to  pay  its 
own  expenses,  the  Preussenkasse  was  compelled  to  offer  to 
its  own  creditors  not  more  than  3%  on  their  deposits.  It 
is  partly  for  this  reason  that  it  has  not  attracted  large  de- 
posits and  has  therefore  been  compelled  on  several  occasions 
to  seek  a  larger  endowment  from  the  State.  And  on  this 
investment  by  the  government  dividends  have  been  low, 
averaging  from  J^  of  1%  up  to  3%  a  year.^ 

But  the  creation  of  the  Preussenkasse  did  not  end  the  con- 
cern of  the  government  for  the  master  artisan.  The  budget 
of  the  Prussian  Department  of  Commerce  for  the  year 
1 896- 1 897  carried  an  appropriation  of  10,000  marks  for 
the  extension  of  cooperation  among  petty  tradesmen.  For 
the  years  1898  and  1899  the  appropriation  was  increased  to 
20,000  marks,  to  30,000  marks  for  1900  and  again  to  45,000 
marks  in  1905.^  This  money  the  government  spent  not 
only  in  the  salaries  and  expenses  of  teachers  of  cooperative 
credit,  but  also  in  defraying  the  costs  of  pamphlets,  organiz- 
ing new  banks,  and  finally  some  of  it  even  was  used  in  loans 
to  increase  the  investment  capital  of  new  banks. 

1  Finck,  op.  cit.,  p.  182. 
-  Finck,  op.  cit.,  p.  270. 


124  ^^^  EVOLUTION  OF  PEOPLE'S  BANKS  [124 

During  these  earlier  years  the  government  teachers  of  co- 
operation found  that  the  easiest  way  to  organize  new  banks 
among  the  artisans  was  to  parallel  the  already  existing  gild 
organization.  Thus  some  banks  were  formed  whose  mem- 
bership was  drawn  entirely  from  one  occupation.  Such  a 
"  gild  bank  "  then  needed  to  join  a  central  bank  almost  at 
once,  because  within  the  one  occupation  there  was  little 
opp>ortunity  for  the  exchange  of  temporary  surpluses. 
Thus  the  growth  of  cooperative  centrals  was  stimulated. 
And  the  need  of  audit  felt  by  both  the  centrals  and  the  local 
gild  banks  stimulated  in  turn  the  formation  of  new  audit 
leagues.  But  such  audit  leagues  would  have  little  in  com- 
mon with  the  Universal  Federation.  Their  members  were 
violating  every  Schulze-Delitzsch  principle.  The  new  co- 
operative centrals  attached  themselves  to  the  Preussenkasse 
and  thus  found  support,  but  the  new  audit  leagues  were  com- 
pelled to  stand  alone. 

Under  these  circumstances  the  government  looked  with 
favor  upon  the  effort  of  the  League  of  Hanoverian  Co- 
operative Societies  for  Artisans  to  form  a  new  federation. 
Other  leagues  cooperated  gladly  and  there  was  thus  formed 
in  1 901  the  Hauptverband  deutscher  gewerblicher  Genos- 
senschaften  or  Head  Federation  of  German  Cooperative 
Societies  for  Artisans,  commonly  known  as  the  Hauptver- 
band or  Head  Federation.^ 

The  Head  Federation  has  its  office  in  Berlin.  Its  pur- 
pose differs  from  that  of  the  Universal  Federation.  It 
admits  not  only  leagues  of  cooperative  societies  but  also 
receives  such  societies  directly,  when  the  society  can  show 
some  reason  for  not  joining  one  of  the  subordinate  leagues. 
It  thus  serves  as  an  auditing  league  as  well  as  a  propagandist 
federation.^     It  admits  to  membership  also  Chambers  of 

1  Finck,  op.  cit.,  p.  276. 

-  Wygodzinski,  op.  cit.,  p.  117. 


125]  STATE  AID  AND  THE  HAUPTVERBAND  125 

Commerce  and  Chambers  of  Industry,  some  of  whom  have 
joined  in  order  to  lend  to  the  organization  their  moral  sup- 
port. The  membership  includes  also  a  few  registered  com- 
panies; but  in  this  respect  it  is  like  the  Schulze-Delitzsch 
Universal  Federation.  The  greatest  difference  between  the 
two  federations  lies  in  the  character  of  the  membership  of 
the  local  cooperative  societies.  It  would  not  be  correct  to 
say  that  the  Head  Federation  included  in  general  the  less 
prosperous  tradesmen  and  artisans,  for  the  membership  of 
the  component  locals  of  the  Schulze-Delitzsch  Universal 
Federation  reaches  at  least  as  far  down  in  the  economic  scale 
as  does  that  of  the  locals  in  the  Head  Federation.  The  dif- 
ference comes  rather  at  the  other  end.  The  locals  of  the 
Head  Federation  do  not  usually  contain  also  the  group  of 
distinctly  prosperous  tradesmen,  store-keepers  and  small 
business  men  such  as  is  to  be  found  so  often  in  the  banks  of 
the  Universal  Federation.  The  Head  Federation  simply 
does  not  extend  so  far  up  the  economic  scale. 

The  purposes  of  the  Head  Federation  include:  (i)  the 
extension  of  cooperation  among  artisans  by  arranging  for 
courses  of  study,  by  furnishing  auditors  and  teachers  for 
its  component  leagues  and  b}'-  publishing  the  federation's 
newspaper;  (2)  safeguarding  the  interests  of  cooperation 
in  the  passage  of  new  legislation;  (3)  the  improvement  of 
the  constitutions  and  by-laws  of  member  societies;  (4) 
supplying  advice  on  all  appropriate  matters;  (5)  prepara- 
tion of  statistics  concerning  the  cooperative  movement 
among  artisans;  (6)  serving  as  an  audit  league  for  those 
cooperative  societies  which  hold  a  direct  membership  in 
the  federation. 

In  many  official  circles  the  organization  of  the  Hauptver- 
band  was  hailed  with  real  delight.  It  was  hoped  that  the 
Hauptverband  might  prove  to  be  a  means  by  which  those 
handworkers  who  had  no  assistants  might  be  eduqated  up 


126  I^HE  EVOLUTION  OF  PEOPLE'S  BANKS  [126 

to  cooperation.  To  extend  a  knowledge  of  business 
methods  among  these  artisans,  courses  of  study  were  estab- 
lished. These  courses,  however,  were  primarily  designed 
for  those  who  were  planning  to  become  managers  of  co- 
operative societies  and  could  thus  pass  their  knowledge  on 
to  a  wider  group.  Attendance  on  these  courses  has  been 
helped  by  scholarships  granted  by  local  chambers  of  in- 
dustry, by  local  governments  and  by  the  state.  In  addition 
to  this  indirect  aid  the  Head  Federation  has  received  also 
direct  financial  assistance  from  the  government,  usually, 
however,  in  very  small  amounts.  But  in  one  year  this 
amounted  to  as  much  as  $4500.  This  government  aid  has 
proved  to  be  the  chief  prop  of  the  Head  Federation's  finan- 
cial system.  Nevertheless  that  organization  has  striven  to 
develop  some  independent  income  also.  In  1905  this  inde- 
pendent income  amounted  to  $1750. 

To  the  presidency  of  this  new  federation  was  elected  one 
of  the  best  known  of  the  government's  traveling  lecturers 
on  cooperation.  To  its  vice-presidency  the  Head  Federa- 
tion elected  the  Preussenkasses  bank  inspector.  These  two, 
together  with  the  representatives  of  the  various  chambers 
of  industry  and  the  managers  of  the  subordinate  auditing 
leagues,  form  the  board  of  directors.  In  spite  of  this  inter- 
locking management  the  Prussian  Minister  of  Commerce 
has  asserted  that  the  government  did  not  attempt  to  in- 
fluence the  policy  of  the  Head  Federation.  On  the  other 
hand  it  is  to  be  noted  that  other  federations,  less  dependent 
on  the  Preussenkasse  than  is  the  Head  Federation,  have 
complained  of  such  interference  and  the  annual  report  of 
the  Head  Federation  in  1906  concluded  with  thanks  to  the 
Prussian  Minister  of  Commerce  and  Industry  and  to  the 
Preussenkasse  for  the  extensive  assistance  which  the  federa- 
tion had  received. 

In  spite  of  all  this  aid,  things  did  not  go  entirely  well  for 


127]  STATE  AID  AND  THE  HAUPTVERBAND  127 

the  state-aided  urban  cooperatives.  Out  of  a  group  of 
579  cooperative  societies  including  stores,  factories  and 
purchasing  agencies,  formed  during  the  years  from  1894 
to  1905  no  less  than  146  dissolved.  To  people  accus- 
tomed to  the  rapid  formation,  dissolution  and  reorganiza- 
tion of  business  firms  which  marks  most  American  cities, 
such  figures  would  perhaps  indicate  an  impressive  stability. 
At  the  end  of  the  ten-year  period  almost  precisely  three 
fourths  of  the  new  organizations  were  still  in  existence  and 
were  still  doing  business  under  the  same  firm  name.  To 
Germans  the  dissolution  of  one  fourth  was  the  impressive 
fact. 

Dr.  Criiger,  the  counsel  of  the  Universal  Federation,  based 
his  attacks  on  these  so-called  "  gild  banks  "  chiefly  on  two 
grounds.  In  the  first  place  all  the  members  of  the  banks 
were  drawn  from  one  occupation.  In  the  second,  most  of 
these  new  banks  had  adopted  limited  liability  and  had  made 
the  limit  for  this  liability  quite  low.  Thus  the  basis  for 
borrowing  was  inadequate.  The  experience  of  these  gild 
banks  amply  supported  his  view;  public  officials  soon  be- 
came convinced  that  the  organization  of  gild  banks  was  a 
mistake.^  Two  other  points  of  difference  still  existed  be- 
tween Dr.  Criiger  and  the  representatives  of  the  state-aided 
movement.  Dr.  Criiger  set  up  as  his  two  chief  requisites 
essential  for  the  success  of  a  new  people's  bank,  (i)  the 
availability  of  good  officers  or  at  least  of  good  ofiicer- 
material,  and  (2)  the  genuineness  of  the  need  for  the  new 
bank. 

That  banks  had  been  organized  in  places  where  there  was 
no  real  desire  nor  need  was  admitted  in  1906  by  Representa- 
tive Hammer,  one  of  the  leaders  of  the  Head  Federation.^ 

^  Finck,  op.  cit.,  p.  276. 
2  Finck,  op.  cit.,  p.  274. 


128  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [128 

As  might  perhaps  have  been  expected,  it  was  discovered  that 
the  ordinary  tradesman  was  not  only  an  individuaUst  but  also 
a  man  of  limited  time,  money  and  strength.  He  would  not 
join  a  people's  bank  and  help  to  maintain  it  simply  because 
he  might  benefit  his  fellow-man  and  incidentally  obtain 
some  slight  advantage  for  himself.  He  would  usually  un- 
dertake the  effort  and  risk  only  when  his  need  was  great 
and  the  advantages  clearly  apparent  and  not  too  remote. 
Government  officials  on  the  other  hand  were  interested  in 
spreading  cooperation  because  it  would  ultimately  make 
the  handworkers  better  business  men  and  better  citizens. 
Handwordkers  might  be  induced  to  join,  but  they  would  re- 
main members  only  when  they  saw  some  fairly  immediate 
and  quite  tangible  advantage  to  themselves. 

The  availability  of  good  officer  material  has  proved  to  be 
not  only  one  of  the  most  important  essentials,  but  also  one  of 
the  most  difficult  to  estimate  for  large  groups.  Dr.  Criiger 
once  went  so  far  as  to  assert  that  it  was  almost  impossible 
to  organize  a  cooperative  bank  which  consisted  solely  of 
people  who  worked  with  their  hands,  and  to  have  such  a 
bank  then  prove  able  to  survive  under  the  conditions  of 
present-day  intense  competition.^  This  assertion,  in  the  ex- 
treme form  that  survival  was  impossible,  time  has  pretty 
well  disproved;  and  it  would  furthermore  be  unfair  to  Dr. 
Criiger  not  to  point  out  that  this  assertion  was  made  in  March 
1899  before  the  state-aid  campaign  had  been  under  way 
long  enough  to  show  decisive  results.  On  the  other  hand 
there  can  be  no  doubt  that  he  here  put  his  finger  upon  the 
most  serious  defect  of  the  state-aided  campaign,  the  or- 
ganization of  banks  without  a  sufficiently  careful  examina- 
tion of  the  officer  material  available.  This  defect  had  also 
appeared  within  the  Universal  Federation  itself  at  the  time 

1  R.  Finck,  op.  cit.,  p.  275. 


129]  STATE  AID  AND  THE  HAUPTVERBAND  129 

of  its  most  rapid  growth.  This  defect  is  fatal  and  it  seems 
to  be  an  almost  necessary  concomitant  of  any  wholesale  cam- 
paign for  organizing  people's  banks,  or  new  businesses  of 
any  kind.  The  greater  the  resources  and  the  more  energetic 
the  campaign,  the  greater  the  danger. 

However,  these  state-aided  cooperatives  have  not  only 
survived,  but  have  shown  a  remarkably  healthy  growth  for 
nearly  a  generation,  though  the  era  of  most  rapid  growth, 
as  might  be  expected,  was  the  period  just  following  1895 
while  the  government  was  still  conducting  its  great  organiz- 
ing campaign. 

By  1903  there  were  in  existence  some  420  or  430  urban 
cooperative  societies  founded  as  a  result  of  state  aid. 
There  w^ere  then  13  cooperative  centrals  which  had  been 
joined  by  294  of  these  societies.  There  were  also  10  audit 
leagues  whose  membership  included  275  cooperative  socie- 
ties, either  central  or  local.  Most  of  these  audit  leagues 
had  by  that  time  joined  the  new  Head  Federation.^ 

Ten  years  later  the  Head  Federation  contained  472 
people's  banks  of  whom  427  published  reports.  These  427 
contained  119,698  members  and  had  outstanding  at  the  end 
of  the  year  loans  amounting  to  293,672,057  marks  or  ap- 
proximately $75,000,000.^  And  even  during  the  war  time 
five  years  later  figures  remained  approximately  the  same. 
The  report  for  the  year  1920  covered  business  up  to  De- 
cember 31,  19 1 8.  At  that  time  the  Head  Federation  con- 
tained 15  central  cooperative  credit  associations,  504 
people's  banks  and  1046  cooperative  societies  of  other 
types.  Of  the  504  people's  banks,  432  published  reports. 
These  432  people's  banks  at  the  close  of  191 8  contained 
108,723  members.     The  banks'  combined  capital  amounted 

^  R.  Finck,  ol\  cit.,  p.  272. 

'  H.  Criiger.  Jahrhuch  dcs  AUgemeinen  Vcrbandes  fiir  IQ14. 


I30  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [130 

to  32,253,269  marks,  their  combined  surplus  accounts  to 
15,688,378  marks,  while  deposits  and  other  liabilities 
amounted  to  458,472,315  marks.  In  addition  to  other  in- 
vestments during  the  year,  these  people's  banks  of  the  Head 
Federation  had  lent  to  members  during  the  course  of  that 
one  year  1,427,028,046  marks.  But  most  of  the  loans  had 
been  for  short  periods  only  and  had  been  repaid,  so  that  at 
the  close  of  the  year  the  loans  still  outstanding  totaled  but 
300,033,263  marks.  Fourteen  of  the  fifteen  cooperative 
centrals  published  statements.  Their  total  loans  at  the  end 
of  the  year  were  but  25,5/1^,549.^  When  it  is  recalled  that 
these  centrals  receive  deposits  and  loans  from  local  banks 
and  from  each  other  as  well  as  from  the  Preussenkasse,  it 
will  be  noticed  that  state  aid  in  19 18  formed  but  a  small 
portion  of  the  total  assets  of  the  state-aided  urban  banks. 
On  the  other  hand  it  must  ibe  recalled  that  by  191 8  prices  in 
Germany  had  risen  to  several  times  their  pre-war  average, 
though  the  mark  had  not  yet  fallen  to  its  present  level. 
Thus  the  services  which  these  banks  were  rendering  to  their 
108,000  members  were  not  inconsiderable. 

The  normal  American  investigator  would  inevitably  ask 
next  whether  the  great  campaign  of  state  aid  undertaken  in 
1895  ^^^  the  years  following  has  paid.  To  this  an  unquali- 
fied answer  probably  cannot  be  given.  In  the  field  of  rural 
credit,  the  success  of  the  campaign  has  been  too  great  to 
be  denied.  But  we  are  here  concerned,  not  with  rural  or 
agricultural,  but  with  urban  and  commercial  credit. 

In  this  narrower  field  the  character  of  our  judgment  will 
depend  entirely  upon  the  nature  of  the  standards  which  we 
set  up  for  the  purpose  of  judging  the  movement.  If  the 
test  of  success  is  to  be  the  extent  to  which  the  new  people's 
banks  have  been  able  to  lend  money  safely  and  profitably  to 

^  H.  Criiger,  Jahrhuch  des  Allgemeincn  Verhandes  fiir  1918. 


131  ]  STATE  AID  AND  THE  HAUPTVERBAND  131 

a  group  of  city-dwellers  not  reached  iby  other  banks,  our 
decision  probably  must  be  in  the  negative.  At  the  very 
time  that  the  locals  of  the  Hauptverband  were  lending  300,- 
000,000  marks  to  100,000  members,  the  locals  of  the  older 
Universal  Federation  were  lending  over  1,196,000,000  marks 
to  578,573  members.  The  financial  results  therefore,  when 
considered  alone,  probably  have  not  justified  the  effort  ex- 
pended in  the  government  campaign. 

If  the  test  of  success  is  to  be  not  a  question  of  how  many 
men  have  received  direct  pecuniary  benefit,  but  rather  how 
many  have  been  educated  into  becoming  better  business  men 
through  their  dealings  with  banks  whose  friendliness  and 
cooperation  is  assured,  and  how  many  men  have  been 
educated  into  better  citizenship  through  their  joint  respon- 
sibility and  joint  control  of  the  common  undertaking,  then 
our  answer  must  be  more  cautious.  On  which  side  the 
balance  will  fall,  would  with  each  probably  be  found  to 
depend  ultimately  upon  how  high  a  price  he  was  willing  to 
pay  to  have  such  education  extended.  In  this  connection  it 
is  interesting  to  note  that  the  German  states  almost  with- 
out exception  have  decided  that  the  game  was  worth  the 
candle,  and  in  some  form  or  other  have  followed  the  Prus- 
sian example  of  state-aid. 

The  next  question  which  would  naturally  arise  in  the 
minds  of  most  Americans  is  whether  such  a  policy  could 
profitably  be  adopted  in  this  country.  In  this  connection  it 
must  be  pointed  out  that  this  experiment  in  state  aid  was 
undertaken  in  a  country  which  already  possessed  an  efficient 
bureaucracy,  and  in  which  people  were  accustomed  to  seeing 
hospitals,  universities  and  charities  managed  by  govern- 
ment officials.  In  the  United  States  there  are  state  institu- 
tions of  each  of  these  kinds,  but  most  American  philanthro- 
pic and  educational  enterprises,  other  than  our  public 
schools,  are  in  the  hands  of  private  membership  corpora- 


132  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [132 

tions  and  are  often  managed  by  boards  of  trustees.  To  a 
very  considerable  extent  the  functions  exercised  in  Europe 
by  the  state  are  in  this  country  delegated  to  privately- 
managed  charitable  corporations. 

It  should  also  be  noted  that  the  class  whom  the  German 
governments  have  been  most  anxious  to  reach,  the  people 
whom  they  regarded  as  most  in  need  of  this  aid  as  well  as 
most  worthy  of  it,  have  been  a  class  which  is  almost  non- 
existent in  America  to-day.  Economists  often  divide  the 
progress  of  industry  after  it  emerges  from  the  household 
economy  into  three  stages: — (i)  the  handicraft  stage  (2) 
the  stage  of  domestic  manufacture  and  (3)  the  factory 
system.  In  the  handicraft  stage  the  man  who  does  the 
work  owns  his  own  tools  and  materials  and  finds  his  own 
customers.  This  is  the  stage  of  the  shoe-repair  man  and 
the  local  blacksmith.  It  is  a  type  of  business  familiar 
enough  to  Americans.  The  second  stage,  that  of  domestic 
manufacture,  occurs  when  the  man  who  does  the  work,  turns 
over  the  finished  product  to  some  merchant.  The  work- 
man still  owns  his  own  tools,  but  he  has  lost  contact  with 
the  consumers  of  his  product.  He  gets  his  income  either 
from  a  piece  rate  for  work  done  in  his  own  house  or  more 
usually  from  the  difference  between  the  price  of  the  materials 
he  buys,  and  the  price  of  the  product  which  he  sells.  If  he  has 
not  sufficient  capital  to  pay  for  his  materials  and  must  buy 
on  credit,  he  may  be  compelled  to  sell  his  finished  product 
to  his  creditor  at  a  price  more  satisfactory  to  the  creditor 
than  to  himself.  This  system  of  domestic  manufacture  is 
represented  in  this  country  by  some  of  the  sweated  trades, 
by  many  of  the  negro  tenant  farmers  and  a  few  other  ex- 
amples. Here  as  in  Germany  the  system  has  proved  sus- 
ceptible of  great  abuse,  but  with  the  important  difference 
that  in  this  country  the  "  domestic  system  "  is  quite  rare. 
The  third  stage,  that  of  factory  production  in  which  the 


133]  STATE  AID  AND  THE  HAUPTVERBAND  133 

man  who  does  the  work,  owns  neither  tools  nor  materials 
nor  does  he  find  the  purchaser  for  his  product,  was  relatively 
more  common  in  this  country  during  the  last  decade  of  the 
last  century  than  in  Germany.  It  is  the  factory  wage- 
laborer  whom  most  American  city-dwellers  have  thought  of 
as  needing  relief.  The  German  states  were  not  trying  to  aid 
these,  but  rather  the  artisans  who  were  producing  under 
the  first  or  second  systems,  that  is,  those  who  were  in  the 
stage  of  handicraft  or  domestic  manufacture. 

Finally,  it  is  an  open  question  whether  the  German  bank- 
ing system  with  its  huge  banks,  each  possessing  a  large 
number  of  branches,  has  met,  or  is  capable  of  meeting,  the 
needs  of  small  borrowers  as  well  as  is  the  American  system 
consisting  of  a  large  number  of  local  banks  each  locally 
managed. 


CHAPTER  VIII 

The  Schulze-Delitzsch  Movement  Under 
Counsel  Cruger 

The  service  of  Dr.  Hans  Cruger  as  Counsel  dates  from 
1895.  He  entered  upon  his  duties  at  a  time  when  the  gov- 
ernment was  very  much  interested  in  increasing  cooperation 
in  agriculture,  and  the  state  institution  for  that  purpose 
(among  others)  had  already  been  decided  upon.  This  state 
institution  started  its  existence  almost  as  soon  as  the  new 
counsel  started  his  service.  Even  at  the  time  that  he  entered 
upon  this  service,  there  were  already  more  cooperatives  of 
the  rival  types  in  existence  than  of  the  older  Schulze- 
Delitzsch  type.  The  rival  systems  consisted  chiefly  of  small 
societies  and  of  poor  men,  so  that  the  Universal  Federation 
still  included  more  members  and  much  more  wealth  than  the 
rival  systems.  The  Universal  Federation  had  already  as- 
sumed its  present  position  as  a  leader  among  equals.  The 
service  of  Counsel  Schenck  just  about  covers  the  period 
during  which  the  Universal  Federation  was  decisively  de- 
prived of  any  claim  to  dominance  over  the  cooperative  move- 
ment. 

The  first, year  of  Counsel  Criiger's  service  was  marked  by 
the  passage  of  a  supplementary  cooperative  law.  At  the  in- 
sistence of  the  rival  organizations  of  rural  cooperative  soc- 
ieties the  statute  of  1889  was  amended  (August  12,  1896) 
so  as  to  permit  the  accumulation  of  a  surplus  above  the 
share  capital.  On  the  face  of  it,  this  was  merely  a  change 
allowing  the  adoption  of  an  ordinary,  conservative  business 
134  [134 


135]  THE  SCHULZE-DELITZSCH  MOVEMENT  135 

policy.  But  the  fight  over  the  new  law  was  due  to  the 
fact  that  the  banks  of  the  rival  system  desired  to  pay  no 
dividends  at  all  on  the  capital  invested  by  members,  but  to 
use  all,  or  practically  all,  net  earnings  for  the  purpose  of 
building  up  an  indivisible  reserve  or  endowment  fund,  which 
should  belong  not  to  members  but  to  the  community,  in  the 
sense  that  its  prime  purpose  was  to  benefit  future  members. 
With  such  a  quasi-socialistic  scheme  Schulze-Delitzsch  and 
his  followers  would  have  nothing  to  do. 

The  growth  of  cooperative  stores  between  1889  and  1896 
was  such  that  this  branch  of  the  cooperative  movement  was 
now  regulated  in  much  greater  detail.  The  statute  of  1896 
then  contains  a  whole  row  of  limitations  imposed  upon  co- 
operative stores,  but  these  may  be  omitted  here  as  they  do 
not  concern  the  cooperative  banks. 

In  1897  the  new  code  of  commercial  law  finally  appeared. 
Representatives  of  the  various  states  of  the  German  Empire 
had  been  disputing  over  the  various  differences  in  the  law  of 
property  ever  since  1871.  It  was  not  until  1896  that  agree- 
ment could  finally  be  reached  and  the  results  published  as  a 
statute  of  the  empire.^  The  publication  of  this  code  made 
necessary  various  minor  alterations  in  the  cooperative  law. 
These  were  made,  and  the  whole  cooperative  law  was  finally 
codified  and  published  in  1898  to  go  into  effect  on  January 
I,  19CX). 

In  the  mean  time  the  fight  between  the  Universal  Federa- 
tion and  the  Prussian  Government  Central  Cooperative 
Bank  continued.  But  the  nature  of  these  disputes  has  al- 
ready been  sufficiently  indicated  in  the  preceding  chapter. 
The  most  significant  events  during  the  years  following  1898 
are  those  associated  with  the  continued  growth  of  the  co- 
operative stores. 

1  Cf.  Hayes,  Political  arid  Social  History  of  Modern  Europe,  vol. 
ii,  p.  404. 


136  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [136 

For  a  long-  time  this  aspect  of  the  cooperative  movement 
in  Germany  had  been  extremely  backvvard,  in  spite  of  the 
fact  that  it  was  the  cooperative  store  which  had  been  first 
advocated  in  Germany  by  Huber.  The  reason  for  this  slow 
development  was  simple.  Cooperative  stores  made  their 
chief  appeal  to  wage-earners.  And  there  were  relatively 
few  wage-earners  in  the  Germany  of  1850.  Manufactures 
were  still  carried  on  chiefly  by  the  handworker,  that  is,  the 
master  artisan.  Cooperative  institutions  had  to  be  recast 
to  meet  the  needs  of  the  people  whose  needs  had  not  yet 
been  met.  In  1852  these  were  the  master  artisans.  But  by 
1890  wage-earners  in  Germany  were  a  force  to  be  reckoned 
with. 

In  1890  Dr.  Glackemeyer,  the  manager  of  the  Hanover- 
ian Leagtie  of  People's  Banks  started  an  attack  upon  the 
cooperative  stores.  He  asserted  that  the  purposes  of  the 
cooperative  stores  and  of  the  people's  banks  were  so  different 
that  the  two  types  of  cooperative  organizations  ought  not 
to  be  included  in  the  same  federation.  His  efforts  to  drive 
out  the  cooperative  stores  were  defeated  and  he  himself  was 
severely  rebuked.  Thereup>on  he  and  his  league  withdrew 
from  the  Universal  Federation  and  attempted  to  organize 
a  rival  federation  for  people's  banks  only.  And  for  many 
months  thereafter  the  organ  of  this  new  league  continued 
to  attack  the  leaders  of  the  Universal  Federation  with  great 
bitterness.  The  attack  was  unsuccessful.  The  cooperative 
stores  in  1890  were  too  weak  to  arouse  anything  but 
sympathy. 

But  in  1 89 1  there  was  organized  in  the  kingdom  of 
Saxony  a  league  of  cooperative  stores  which  chose  for 
itself  the  name  ''  Forward."  This  name  was  significant  in- 
asmuch as  "  Forward  "  had  long  been  the  watchword  of 
the  German  Socialist  Party.  This  league  was  in  fact 
dominated  by  Socialists  as  completely  as  the  older  Schulzje- 


137]  ^^^  SCHULZE-DELITZSCH  MOVEMENT  137 

Delitzsch  movement  had  been  dominated  by  l^rogressives. 
It  is  from  the  organization  of  this  league  in  1891  that  the 
modern  German  cooperative  store  movement  is  to  be  dated.^ 

This  league,  like  the  earlier  efforts  of  Schulze-Delitzsch 
himself,  promptly  attracted  the  hostility  of  the  Saxon  gov- 
ernment. It  happened  at  this  time  that  the  Universal 
I'^deration's  subordinate  league  for  the  kingdom  of  Saxony 
then  stood  in  high  favor  with  the  Saxon  government.  To 
prevent  their  organization  from  being  completely  crushed, 
the  members  of  the  "  Forward  "  league  tried  to  secure  ad- 
mission to  the  Universal  Federation.  This  the  individual 
cooperative  stores  which  had  formed  the  *'  Forward  "  league, 
succeeded  in  doing — after  the  representatives  of  each  store 
had  signed  a  statement  that  the  organization  would  neither 
directly  nor  indirectly  engage  in  politics. 

In  the  years  from  1890  to  1900  it  was  the  gro^vth  of  the 
cooperative  stores  which  contributed  most  to  the  growth  of 
the  Universal  Federation,  and  the  administration  of  the 
Federation  remained  steadily  favorable  toward  the  coopera- 
tive stores.  In  1893  ^^^  convention  at  Stettin  voted  to  op- 
pose all  efforts  to  produce  a  schism  between  the  cooperative 
stores  and  the  cooi)erative  banks.  The  resolution  is  inter- 
esting in  that  the  motion  was  prepared  by  Counsel  Schenck 
and  was  presented  by  Secretary  Cruger,  who  was  soon  to 
l^ecome  counsel  of  the  Federation.  This  friendly  attitude 
toward  cooperation  of  all  types  was  steadily  maintained 
throughout  the  nineties.  But  while  the  federation  was 
thus  maintaining  its  attitude  of  impartial  friendliness 
toward  all,  a  schism  was  appearing  amoug  the  cooperative 
stores  themselves.  By  the  time  the  statute  of  1896  was 
passed,  these  stores  were  divided  somewhat  roughly  into  two 
types.     On  the  one  hand  there  was  a  group  of  stores  whose 

^  Finck,  op.  cit.y  p.  225. 


138  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [138 

Opponents  called  them  "  middle-class."  On  the  other  hand 
there  was  another  group  which  were  in  turn  called  "  social- 
istic "  by  their  opponents. 

The  stores,  called  "  middle-class  "  by  their  critics,  were 
for  the  most  part  larger  than  the  others.  In  general  the 
par  value  of  their  shares  was  higher.  They  were  thus 
much  more  amply  supplied  with  capital.  An  excellent  (al- 
though an  extreme)  example  of  a  cooperative  store  of  this 
type  is  furnished  by  a  member  of  the  Silesian  League  of  Co- 
operative Stores,  the  cooperative  store  at  Breslau.  In  191 1 
it  had  assets  of  over  $1,250,000.  It  did  a  business  of  more 
than  $5,500,000  and  divided  profits  of  more  than  $642,000 
of  which  $10,000  went  as  interest  to  members  for  provid- 
ing the  capital  and  $600,000  was  distributed  to  members  as 
dividends  on  their  purchases.  It  contained  about  95,000 
members  of  whom  only  about  15,000  were  laborers,  while 
about  18,000  were  merchants,  innkeepers  or  the  like,  and 
over  11,000  more  belonged  to  various  professional  classes.^ 

The  second  group  of  cooperative  stores,  called  "  social- 
istic "  by  their  critics,  consisted  chiefly  of  organizations  in 
which  the  number  of  members  and  the  share  capital  pef 
member  were  much  smaller,  but  the  percentage  of  wage- 
earners  was  much  higher..  The  leaders  of  these  organiza- 
tions hoped  to  reproduce  in  Germany  something  equivalent 
to  the  Rochdale  movement  in  England.  The  English  had 
a  Cooperative  Wholesale  Society.  The  leaders  of  the 
German  ''  socialistic "  cooperative-store  movement  organ- 
ized a  German  Cooperative  Wholesale  Company  at  Ham- 
burg. The  English  Cooperative  Wholesale  had  undertaken 
production  on  its  own  account.  The  German  Cooperative 
Wholesale  Company  desired  to  do  the  same  and  was  pre- 
vented from  doing  so  extensively  only  by  its  lack  of  capital. 

^Criiger,    Jahrbuch    des    Allgemeinen    Verhandes    fiir    191 1,    tables 
C.  and  D. 


139]  ^^^  SCHULZE'DELITZSCH  MOVEMENT  139 

Nor  were  these  projects  the  result  of  mere  slavish  imitation 
of  the  English  prototype.  These  Germans  were  actuated 
by  two  motives — on  the  one  hand  a  hope  that  they  might 
perhaps  thus  secure  their  goods  more  cheaply,  and  on  the 
other  a  conviction  that  production  for  personal  gain  was 
morally  wrong.  It  was  the  second  motive  which  was  creat- 
ing the  schism. 

The  ''  middle-class "  cooperative  stores  were  ready  to 
unite  frequently  for  a  joint  purchase  of  goods  which  were 
shipped  to  one  of  the  uniting  stores  and  there  divided  and 
reshipped  to  the  stores  which  ordered  them.  It  has  been 
said  that  in  some  districts  there  were  even  regular  fort- 
nightly meetings  of  the  managers  of  the  various  coopera- 
tive stores  to  make  such  joint  purchasing  easier.  But  such 
purchasing  agreements  were  usually  mere  temporary  affairs. 
Only  occasionally  did  these  managers  bother  to  organize  a 
special  purchasing  society.  Never  did  they  attempt  to 
maintain  a  jointly  owned  warehouse  with  a  reserve  stock. 
Ordinarily  one  society  would  make  the  purchase,  distribute 
the  goods,  collect  from  the  others  and  pay  the  bill.  The 
policy  was  that  of  decentralization,  each  society  for  itself, 
and  no  manager  was  under  any  obligation  to  buy  things  on 
joint  account  if  he  could  purchase  them  more  cheaply  other- 
wise, and  such  regular  meetings  seem  to  have  been  distinctly 
rare.  The  parallel  between  these  "  middle-class  "  cooperative 
stores  and  the  Schulze-Delitzsch  banks  is  obvious. 

The  "socialistic"  cooperative  stores  on  the  other  hand 
stood  for  a  policy  of  centralization.  They  desired  to  make 
the  Cooperative  Whosesale  Company  the  source  of  all  goods 
to  be  distributed.  Each  society  was  expected  to  join  the 
Wholesale  not  simply  to  secure  goods  more  cheaply  but  pri- 
marily to  strengthen  the  Wholesale  and  to  make  it  better 
able  to  undertake  its  next  task,  that  of  independent  manu- 
facture. 


140  ^'^^'  EVOLUriON  OF  PEOPLE'S  BANKS  [140 

In  addition  to  these  two  strongly  contrasted  types,  there 
had  appeared  by  1898  a  third  type,  not  intermediate,  but 
sharply  differentiated  from  each  of  these.  This  third  type 
consisted  of  purchasing-  societies  formed  by  the  keepers  of 
the  ordinary  retail  stores.  The  purpose  of  these  retailers' 
cooperative  purchasing  societies  was  joint  purchase  only. 
Like  the  organizations  of  managers  of  the  "  middle-class  " 
cooperative  stores,  these  new  associations  did  not  ordinarily 
attempt  to  maintain  a  jointly  operated  warehouse  or  a  re- 
serve stock.  These  organizations  of  retailers  were  in  fact 
simply  copies  of  the  organizations  already  common  among 
the  "  middle-class  "  cooperative  stores.  They  were  formed 
chiefly  by  grocers.  At  the  annual  convention  Counsel 
Critger  greeted  the  cooperative  societies  of  this  new  type 
with  particular  pleasure,  because  their  entrance  into  the 
Federation  made  it  obvious  that  the  Universal  Federation 
did  not  represent  any  class  as  against  any  other,  but  merely 
represented  the  self-supporting  cooperative  movement  as  a 
whole. 

But  by  this  time  the  whole  had  come  to  have  parts  which 
were  too  diverse.  There  were  now  three  types  among  the 
cooperative  stores  alone:  (i)  the  so-called  '^  middle-class '* 
stores  (2)  the  so-called  "socialistic"  stores,  and  (3)  the 
retail  grocers'  purchasing  societies.  Each  of  these  involved 
complications. 

First,  as  to  the  '*  middle-class  "  cooperatives.  There  was 
already  trouble  within  the  ranks  of  these  organizations. 
Socialists  were  applying  for  membership,  and  an  increase  in 
the  proportion  of  the  membership  belonging  to  that  party 
was  obvious.  If  the  socialists  were  to  secure  a  majority, 
they  presumably  would  reverse  the  policy  of  the  store. 
This  would  displease  the  older  meml^ers  who  had  no  desire 
to  encourage  a  socialistic  cooperative  wholesale  company. 
Furthermore,  if  the  socialists  secured  control,  they  would 


141]  THE  SCHULZE-DELITZSCH  MO VEMENT  1 4 1 

presumably  change  the  management.  This  would  naturally 
displease  the  present  officers,  and  the  board  of  officers  is  a 
real  power  in  determining  the  policy  of  a  German  coopera- 
tive society.  But  this  impending  danger  of  socialistic  con- 
trol could  be  averted  by  either  of  two  methods:  (i)  a  con- 
tinuous and  strict  examination  of  all  applicants  for  mem- 
'oership,  an  examination  which  for  a  cooperative  store  was 
not  otherwise  necessary,  or  (2)  by  the  simple  expedient  of 
becoming  a  joint  stock  corporation.  By  the  latter  method 
the  store  management  would  also  be  relieved  of  the  necessity 
of  paying  out  the  value  of  a  member's  share  when  he  died. 
They, would  thus  be  relieved  of  the  necessity  of  searching 
for  new  members,  and  of  scrutinizing  them,  for  socialists 
were  not  interested  in  corporations.  Some  cooperative  soc- 
ieties therefore  promptly  were  transformed  into  joint  stock 
corporations. 

The  second  source  of  trouble  within  the  Universal  Fed- 
eration came  from  the  retail  grocers'  purchasing  societies. 
In  Germany  the  retailers  had  always  hated  the  cooperative 
store  with  a  perfect  hatred.  Their  attitude  toward  the  co- 
operative store  was  not  that  of  a  rival  toward  a  new  com- 
petitor. It  was  hatred  toward  a  competitor  who  does  not 
play  the  game  according  to  rules,  who  gives  away  all  the 
trade  secrets,  who  explains  to  customers  many  of  the  trade 
practices.  And  now  these  retailers  were  formally  repre- 
sented within  the  Universal  Federation.  No  wonder  there 
began  to  be  talk  about  socialism ! 

Part  of  this  second  source  of  trouble  lay  also  in  the 
make-up  of  the  people's  banks.  The  borrowers  in  these 
consisted  largely  of  master  artisans  and  of  petty  tradesmen. 
Not  many  of  these,  except  the  grocers,  had  been  hurt  by  the 
cooperative  stores;  but  probably  even  fewer  had  been  bene- 
fited. Furthermore  the  whole  life  of  the  petty  tradesman 
was  such  as  to  make  him  understand  the  retail  grocers' 


142  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [142 

complaint  better  than  the  cooperative  store's  policy. 
It  is  remarkable  therefore  that  the  Universal  Federation 
maintained  for  so  many  years  the  attitude  of  benevolent  im- 
partiality. It  is  a  remarkable  tribute,  not  only  to  the  broad- 
mindedness  of  the  two  Counsels,  but  also  to  the  extent  to 
which  the  Universal  Federation  is  really  dominated  by  its 
abler  leaders. 

The  third  source  of  trouble  was  to  be  found  in  these 
"socialistic  "  stores.  Their  policy  of  building  up  a  coopera- 
tive wholesale  company  and  maintaining  it  for  reasons 
apart  from  the  immediate  financial  gain,  had  become  so  ap- 
parent by  1899  that  Counsel  Criiger  called  attention  to  it  in 
his  annual  report.  It  was  in  the  discussion  of  this  report 
that  Herr  Schorling,  the  manager  of  the  Hamburg  Coopera- 
tive Wholesale  Company,  announced  his  ambition  to  give 
his  company  the  same  position  in  Germany  that  the  Co- 
operative Wholesale  held  in  England.  The  convention  con- 
tented itself  with  merely  recommending  the  extension  of 
wholesale  cooperative  purchasing  societies  (instead  of  the 
Socialistic  program  of  a  cooperative  wholesale  company 
which  would  maintain  a  permanent  store  of  its  own). 

In  1900  the  matter  came  up  again.  The  entire  difference 
in  the  point  of  view  was  brought  out  in  the  fact  that  Criiger 
based  his  objections  to  the  Hamburg  Cooperative  Whole- 
sale Company  on  economic  grounds.  It  was  undoubtedly 
cheaper  for  cooperative  stores  in  Bavaria  to  buy  from  the 
non-cooperative  wholesalers  in  Bavaria  than  to  send  to 
Hamburg  in  northern  Prussia.  His  tone  was  moderate.  In 
1 901  a  special  committee  of  which  Criiger  was  chairman,  re- 
ported that  the  policy  of  starting  factories  of  their  own  was 
practical  only  for  those  cooperative  stores  which  had  both 
adequate  capital  and  an  adequate  market  for  the  product. 
No  encouragemient  was  given  to  the  idea  of  permanent  co^ 
operative  wholesale  stores.  This  report  was  bitterly  at- 
tacked by  various  socialist  newspapers. 


143]  -^-^^  SCHULZE'DELITZSCH  MOVEMENT  143 

At  the  convention  of  1902  at  Kreuznach,  Counsel  Criiger 
reported  that  there  was  no  place  within  the  Universal  Fed- 
eration for  those  cooperative  societies  which  were  using  the 
cooperative  form  merely  as  a  lever  with  which  to  change  the 
whole  economic  system.  Finally  on  September  3,  1902  no 
less  than  97  cooperative  stores  were  expelled  from  the 
Universal  Federation  on  this  charge.  Within  the  next  two 
years  over  300  more  resigned.^ 

These  300  resignations  are  merely  one  evidence  of  the 
bitterness  which  was  aroused  over  the  expulsion.  There 
was  a  veritable  tempest  in  a  tea-pot.  Criiger  was  horribly 
abused  by  many  non-socialists  for  his  action.  Yet  from 
this  distance  one  cannot  but  wonder  if  such  action  were  not 
inevitable  under  the  circumstances.  The  wonder  is  rather 
that  it  had  not  happened  before. 

Most  of  the  larger  and  wealthier  cooperative  stores  re- 
mained in  the  Universal  Federation.  These  were  not  so 
numerous  as  the  others,  but  their  number  does  not  measure 
their  financial  importance.  Those  that  remained  were  the 
"middle-class"  stores.  In  191 1  there  were  273  such  co- 
operative stores  within  the  federation.  Of  these  264  re- 
ported an  average  membership  of  1013  and  an  average 
volume  of  sales  (exclusive  of  commission  business)  of 
$68,163  per  store.^ 

On  the  other  hand  the  cooperative  stores  which  had  been 
expelled  or  had  resigned,  organized  a  federation  of  their 
own  with  its  office  in  Hamburg.  This  Zentralverhand,  or 
Central  Federation  of  Cooperative  Stores,  is  frequently  cal- 
led simply  the  Hamburg  Federation.  Since  its  organiza- 
tion in  1903  it  has  grown  rapidly.  The  expulsion  of  its 
members  by  the  Universal  Federation  proved  to  be  an  ex- 

1  R.  Finck,  op.  cit.  6  Kapitel. 

-  Criiger,  Jahrhuch  fiir  1911,  p.  xciii. 


144  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [144 

cellent  bit  of  advertising.  By  the  time  the  new  league  had 
been  in  existence  three  years,  it  contained  787  stores  which 
in  turn  together  contained  715,000  members.^ 

Each  party  was  probably  better  off  for  the  dissolution  of 
the  mesalliance.  The  alliance  had  been  contracted  under 
duress  by  the  ''  socialistic  ''  cooi:)€rative  stores  at  a  time  when 
there  was  active  government  persecution  of  socialist  organ- 
izations. With  the  passage  of  time  the  harrying  of  social- 
ists had  been  given  up.  Freedom  of  speech  had  increased, 
and  there  was  no  longer  any  reason  except  inertia  to  hold 
the  ''  socialistic "  stores  within  the  Universal  Federation. 
Under  those  circumstances  it  would  look  to  an  outsider  as 
if  the  more  promptly  the  separation  came,  the  better  it  would 
be  for  all  concerned.  And  such  apparently  has  been  the 
•case. 

Scarcely  had  the  excitement  over  the  expulsion  of  the 
""  socialistic  "  cooperative  stores  died  down  when  a  new  mis- 
fortune came  to  the  Universal  Federation.  The  year  1904 
was  marked  by  the  death  of  one  of  Schulze-Delitzsch's  pet 
institutions,  the  Socrgelhank.  It  was  in  that  year  absorbed 
by  the  Dresdner  Bank,  one  of  the  largest  financial  institu- 
tions in  Germany.  This  merger  was  forced  upon  the  smaller 
institution  by  the  difficulties  in  which  it  had  become  involved 
during  the  German  crisis  of  1900  and  the  depression  of 
1900  to  1904.- 

In  Germany  as  in  most  European  countries  during  the 
last  century  payments  were  made,  not  once  a  month  as  in 
this  country,  but  four  times  a  year.  And  many  of  these 
payments  were  then  made  with  currency,  not  by  check. 
Therefore  on  each  of  the  four  ''  quarter  days  "  men  needed 
very  considerable  sums  of  money,  the  need  lasting  from  a 

"•  Finck.  o/>.  cit.,  p.  204. 

2  Cf.  R.  Finck,  op.  cit,,  p.  72  et  seq. 


145]  '^^^  SCHULZE-DELITZSCH  MOVEMENT  145 

few  days  before  the  quarter  day  when  they  began  to  get 
ready  to  make  the  payments,  until  a  few  days  after  the 
quarter  day  when  the  borrowers  could  count  on  having  re- 
ceived the  money  that  was  due  to  them  from  others.  All 
borrowers  then  were  likely  to  desire  to  borrow  a  little  more 
at  such  times  than  at  others,  but  a  banker's  bank  might  find 
that  its  customers  desired  to  borrow  only  at  such  times.  A 
banker's  bank  which  had  no  branches  (or  only  one)  and  no 
right  to  issue  paper-money  might  then  have  great  difficulty! 
in  finding  sufficient  cash  on  these  occasions  to  meet  the  great 
temporary  demand  for  both  loans  and  cash-withdrawals. 
Such  was  the  experience  of  the  Soergelhank.  Four  times 
a  year  its  customers,  the  people's  banks,  desired  to  borrow 
large  amounts  and  then  for  nearly  forty-eight  weeks  of  the 
year  their  demands  were  small.  The  problem  of  the  Soer- 
gelhank was  not  that  of  a  typical  people's  bank  with  seasonal 
demands  for  loans  now  from  one  group  and  now  from  an- 
other, but  a  large  demand  from  all  at  precisely  the  same 
seasons,  and  those  seasons  extremely  short — ^too  short  to 
be  good  revenue  producers.^ 

To  secure  a  revenue  the  Soergelhank  was  compelled  to  do 
other  business  as  well.  In  fact  it  was  planned  even  at  the 
time  of  its  foundation  that  it  should.  But  in  doing  this 
other  business  it  was  faced  with  the  alternative,  as  each 
quarter  day  approached,  of  either  deserting  the  people's 
banks  or  deserting  its  regular  revenue-producing  customers. 
It  remained  faithful  to  the  people's  banks.  Thus  its 
capacity  to  serve  others  was  much  diminished  and  about 
the  only  kind  of  business  it  could  secure  was  that  of  financ- 
ing speculation.  For  this  business  the  banks'  managers 
were  not  well  trained.  In  good  years  this  business  was  ex- 
tremely profitable,  but  in  bad  years  it  involved  very  con- 

1  Cf.  Wygodzinski,  op.  cii.,  p.  171. 


146  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [146 

siderable  losses.  The  crisis  of  1873  had  been  a  bitter  ex- 
perience, but  the  Soergelhank  had  recovered  from  that  and 
had  more  than  recovered.  In  1900  its  capital  had  grown 
to  $9,000,000.  But  the  failure  of  the  Leipziger  Bank  and 
the  panic  which  that  disaster  precipitated  involved  it  again 
in  great  difficulties.  By  1904  its  owned  capital  had  been 
reduced  to  $7,500,000  and  it  felt  compelled  to  accept  the 
offer  of  the  Dresdner  Bank.  Under  the  pressure  of  the  ex- 
isting difficulties  the  vote  approving  the  absorption  was 
rushed  through  the  Breslau  convention  of  the  Universal 
Federation.     And  the  Soergelhank  ceased  to  exist.^ 

The  Dresdner  Bank  then  opened  special  cooperative  sec- 
tions both  in  its  offices  at  BerHn  and  in  its  branch  at  Frank- 
fort. In  taking  over  the  Soergelhank  the  larger  institution 
took  over  also  the  clearing  league  which  the  former  had 
managed.  Through  this  clearing  house  there  passed  in  1909 
a  total  of  827,311  separate  items  with  a  value  of  $71,450,- 
000.^  Soon  afterward  Counsel  Criiger  was  elected  to  the 
board  of  supervisors  of  the  Dresdner  Bank. 

The  final  noteworthy  change  of  the  period  before  the  war 
is  to  be  found  in  the  growth  of  cooperative  building  socie- 
ties. The  early  German  building  societies  were  like  those 
in  England  or  in  the  United  States.  They  tried  to  help  mem- 
bers to  secure  one-family  houses  and  to  pay  for  them.  In 
this  form  they  had  relatively  little  development.  But  about 
1885  the  Hanover  Cooperative  Savings  and  Building  As- 
sociation started  to  build  tenements  to  rent  to  its  members. 
It  thus  started  a  new  type  of  building  society.  The  older 
type  continued  to  exist,  but  the  new  type  became  the  more 
important  within  the  German  empire — ^became  in  fact  the 
only  really  significant  type  there. 

1  Finck,  op.  cit.,  p.  72  et  seq. 

2  Wygodzinski,  op.  cit.,  p.  172. 


147]  '^^^  SCHULZE-DELITZSCH  MOVEMENT  147 

Cooperative  building  associations  of  this  new  type  con- 
sist— in  Germany  at  least — chiefly  of  groups  of  laborers  or 
of  government  employees,  groups  within  which  there  is  con- 
siderable uniformity  of  income  and  of  expenditure.  Nearly 
all  are  societies  with  limited  liability  and  the  shares  are 
very  large — that  is,  large  for  German  cooperative  societies. 
A  survey  made  in  1908  showed  that  more  than  two  thirds 
of  all  German  building  associations  had  shares  whose  value 
was  between  100  and  300  marks,  ($25 — $75).  About  one 
fourth  more  had  shares  of  less  than  $25  while  only  about 
5%  of  the  total  number  had  shares  whose  par  exceeded  $75. 
This  par,  while  huge  for  a  German  cooperative  society,  is 
amazingly  small  when  compared  with  the  American  and 
English  societies.  Furthermore  only  about  one  third  of 
the  total  membership  had  purchased  more  than  one  share.^ 

In  addition  to  its  share  capital  a  building  association 
ordinarily  has  a  surplus.  For  the  642  building  associations 
which  reported  in  1909  this  surplus  amounted  to  about  one 
sixth  of  their  share  capital.  But  owned  capital  in  these  two 
forms  together  formed  but  a  small  proportion  of  the  whole. 
In  every  league  which  reported,  borrowed  capital  greatly 
exceeded  the  members'  investments.  The  position  of  thel 
building  associations  which  belonged  to  the  Universal  Fed- 
eration is  typical.  Here  owned  capital  amounted  to  less 
than  12%  of  the  total.     Over  88%  had  been  borrowed. 

Of  this  borrowed  capital  more  than  four  fifths  had  been 
borrowed  by  mortgage.  About  a  tenth  more  was  repre- 
sented by  savings  deposits.  The  remaining  tenth  consisted 
of  a  miscellaneous  assortment  of  debts,  prominent  among 
which  were  unredeemable  debentures,  instalments  paid  by 
members  on  houses  which  had  not  yet  been  transferred  to 
them,  loans  and  unpaid  accounts  for  building  materials.         ; 

^  Wygodzinski,  op.  nV.,.chap.  xxii,  pp.  223  et  seq. 


148  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [148 

The  outstanding  fact  about  the  finances  of  German  build- 
ing associations  is  thus  the  extraordinary  percentage  of 
borrowed  capital.  Mortgages  alone  supply  well  over  two 
thirds  of  the  total  investment.  For  the  associations  in  the 
Universal  Federation  the  sources  of  capital  were : 

Debt  secured  by  mortgage 72% 

Other  debts 16% 

Share  capital 10% 

Surplus  2% 

The  proportion  of  the  mortgage  debt  which  has  been 
borrowed  on  first  and  on  junior  mortgages  is  not  available, 
but  it  is  reported  to  be  customary  to  give  two  mortgages. 
Indeed  a  second  mortgage  would  probably  be  necessary  in 
order  to  borrow  so  large  a  proportion  of  the  total  cost. 

The  reason  for  this  great  reliance  on  mortgage  loans  is 
to  be  found  in  the  cheapness  with  which  the  building  as- 
sociations were  able  to  borrow  in  this  way.  The  great 
public  funds  for  social  insurance  were  ready  to  lend  their 
reserves  to  these  building  associations  at  extraordinarily 
low  rates.  Three  percent  interest  plus  one  percent  a  year 
to  reduce  the  principal  satisfied  the  managers  of  these  funds 
for  many  years.  But  in  19 10  the  Imperial  Insurance  Office 
issued  an  order  which  required  the  various  insurance  funds 
to  charge  at  least  3^4%. 

The  dismay  which  this  increase  in  the  interest  rates 
caused  then  raised  the  question  in  many  minds  as  to  whether 
the  German  building  associations  were  really  fundamentally 
sound.  This  doubt  was  rendered  all  the  more  acute  by  the 
disinclination  of  association  members  to  raise  their  own 
rents.  Higher  rents  would  mean  adequate  income  for  the 
association,  adequate  appropriations  for  surplus  to  insure 
solvency  and  liberal  dividends  paid  back  to  members.  Ap- 
parently members  would  merely  pay  out  of  one  pocket  into 
Ihe  other.     The  hitch  lay  in  the  *'  adequate  appropriations 


149]  ^^^  SCHULZE-DEUTZSCH  MOVEMENT  149 

for  surplus."  This  surplus  would  benefit  the  association  and 
particularly  future  members  of  the  association.  But  when 
a  member  moves  away,  it  will  be  remembered  that  he  is  re- 
quired by  law  to  withdraw  from  the  cooperative  society. 
In  withdrawing  he  may  take  out  with  him  his  share  capital, 
but  he  has  no  right  to  any  portion  of  the  association's  sur- 
plus. Thus  members  are  not  eager  to  economize  in  their 
personal  expenses,  to  save  in  order  to  increase  a  surplus 
which  will  benefit,  not  themselves  and  their  own  families, 
but  the  strangers  who  are  elected  in  their  stead  when  they 
move  away.  And  saving  is  not  easy  for  wage-earners  at 
any  time. 

This  dependence  of  membership  on  place  of  residence  with 
its  consequent  instability  of  total  membership  is  indeed  the 
chief  difificulty  in  the  German  building  associations.  It  not 
only  makes  members  unready  to  accumulate  a  surplus,  but 
it  places  before  the  managers  and  the  associations'  creditors 
alike  the  constant  possibility  that  members  may  retire,  with- 
draw their  capital  and  thus  narrow  an  equity  already  thin. 
It  is  an  interesting  commentary  on  the  stability  of  the 
demand  for  housing  in  German  cities  that  the  dif^culties  re- 
sulting from  this  have  so  far  been  small. 

On  the  other  hand  it  must  be  admitted  that  the  total  of 
the  dwellings  constructed  by  German  building  associations 
is  not  large.  In  Frankfort  A.  M.  a  survey  was  made  in 
which  it  was  discovered  that  95%  of  the  dwellings  there  had 
been  constructed  by  individual  proprietors.  Only  5%  of 
the  total  had  been  constructed  by  associated  activity.  And 
this  5%  of  ''  associated  activity  "  included  not  only  building 
associations  but  also  the  city  and  the  state  as  well  as  joint- 
stock  corporations. 

The  importance  of  the  building  associations  of  Germany 
has  lain  in  two  things.  In  the  first  place  the  existence  of 
this  legal  form  of  organization  by  which  tenants  could  easily 


1^0  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [150 

unite  to  contruct  their  own  building,  has  put  them  in  a  re- 
latively strong  position  for  bargaining  with  their  landlords, 
and  thus  has  probably  enabled  them  to  hold  down  rents  to 
some  extent  at  least.  It  is  not  surprising  therefore  that  the 
landlords  complain  continually  of  the  activity  of  the  build- 
ing societies.  The  second  reason  for  the  importance  of 
building  associations  in  Germany  lies  in  the  fact  that  these 
associations  have  been  pioneers  in  the  contruction  of  model 
tenements  and  in  the  adoption  of  modern  improvements. 

The  chief  objection  to  them  seems  to  be  social  rather  than 
economic.  Starting  with  a  group  already  homogeneous  in 
the  type  of  housing  they  demand,  and  frequently  homo- 
geneous also  in  income,  occupation  and  general  view-point, 
the  building  association  of  this  newer  type  supplies  for  its 
members  a  centre  wherein  each  may  interchange  his  ideas 
with  others  in  the  group  and  thus  grow  more  uniform  in 
view-point  and  habit.  This  like-mindedness  or  conscious- 
ness of  kind  combined  with  the  mere  physical  distance  of 
people  belonging  to  other  classes  has  tended  to  create  in 
these  tenement  or  apartment  houses  a  group  of  people  as 
exclusive  as  our  so-called  "  four  hundred."  And  the  desira- 
bility of  this  condition  has  rather  justly  been  questioned. 
The  problem  is  not  serious  chiefly  because  the  movement  is 
not  yet  of  sufficient  size  to  make  it  important.      \ 

These  various  problems  perhaps  are  sufficient  to  illus- 
trate how  far  the  Schulze-Delitzsch  movement  has  pro- 
gressed from  its  original  rather  simple  form.  In  size  too 
the  movement  has  progressed.  The  Counsers  report  for 
191 3  covering  business  up  to  the  close  of  191 2  presented  the 
following  figures  (i)  for  that  portion  of  the  Schulze- 
Delitzsch  movement  which  was  represented  by  the  Universal 
Federation,  and  (2)  for  all  German  cooperative  societies 
whether  strictly  Schulze-Delitzsch  or  belonging  to  one  of 
the  many  variants  from  this  type.  1 


1 5 1  ]  THE  SCHULZE-DELITZSCH  MO VEMENT  151 

In  the  Universal  In  Germany 
Federation 
Number  of  cooperative  socie- 
ties in  existence 33,^57 

Number  of  cooperative  socie- 
ties reporting 1,471  25,023 

Number  of  members 1,007,736  '  5,162,450 

Share  capital  and  surplus    91  million  dollars  180  million  dollars 

Borrowed  capital  349  million  dollars  1524  million  dollars 

Total   receipts   and   disburse- 
ments for  the  year  1912 4  billions  of  dollars        7  billions  of  dollars 


CHAPTER  IX 

The  Universal  Federation  of  Self-Supporting 
Cooperative  Societies 

The  development  of  the  Schulze-Delitzsch  movement^ 
the  activities  of  Schulze's  Universal  Federation  and  its 
ambitions  have  been  described  in  the  preceding  pages.  But 
nothing  has  been  said  of  the  nature  of  the  organization 
through  which  this  movement  has  functioned.  We  must, 
therefore,  now  consider  its  institutional  frame-work,  that 
is,  the  structure  of  the  Universal  Federation. 

The  growth  of  this  institutional  skeleton — as  contrasted 
with  the  development  of  the  whole  body — may  be  summarized 
briefly.  It  will  be  recalled  that  from  1852  until  1859  the 
only  bond  between  the  new  banks  was  the  personal  influence 
of  Schulze-Delitzsch.  In  1859  his  position  as  advisor  and 
publicity  manager  was  recognized  by  the  creation  of  the  Cen- 
tral Correspondence  Bureau  for  German  People's  Banks 
with  Schulze-Delitzsch  as  secretary.  In  i860  a  committee 
was  appointed  by  the  member  unions  to  cooperate  with  the 
employed  secretary  by  supervising  the  work  of  the  bureau. 
In  1 86 1  this  secretary  changed  his  title  to  Counsellor.  In 
1862  the  Counsellor  secured  the  creation  of  provincial  leagues 
to  help  him  with  his  work,  especially  with  the  task  of  sup- 
plying trained  accountants  to  audit  the  local  banks.^  Two 
years  later  the  whole  system  was  standardized  by  the  adop- 
tion of  a  constitution.  In  1864  also  the  annual  convention 
chose  for  its  newly  standardized  organization  the  mouth- 

1  Cf.  W.  Wygodzinski,  op.  cit.,  pp.  92  and  93. 
152  [152 


1^3]     SELF-SUPPORTING  COOPERATIVE  SOCIETIES       153 

filling  and  sonorous  title  Allgemeiner  Verhand  der  auf 
Selhsthilfe  beruhenden  deutschen  Erwerhs  und  Wirtschafts- 
genossenschaften  which  in  this  book  has  been  translated 
■ — *'  The  Universal  Federation  of  Self-supporting  Co- 
operative Societies."  The  passage  of  the  cooperative 
statute  of  1889  hastened  some  changes  in  the  structure  of 
the  federation;  thus  this  constitution  underwent  a  revision 
in  1 891.  Some  rather  minor  changes  were  made  again  in 
1904.  The  structure  of  the  federation  has  however  re- 
mained fairly  uniform  for  fifty  years,  perhaps  because  the 
purposes  to  be  served  have  remained  much  the  same. 

The  purposes  of  the  Universal  Federation,  as  stated  by 
its  constitution,  include :  (a)  the  advancement  of  the  general 
cooperative  movement,  (b)  the  progressive  inprovement  of 
the  constitutions  and  policies  of  the  member  societies,  and 
(c)  the  protection  of  their  common  interests.^  The  Uni- 
versal Federation  is  not  an  auditing  league.  In  this  it 
differs  from  the  Head  Federation.  It  differs  from  the 
Head  Federation  and  also  from  all  other  federations  in  that 
it  assumes  the  burden  and  expense  of  gathering  and  publish- 
ing each  year  the  statistics  of  all  cooperative  societies  in 
Germany.  It  thus  lives  up  to  its  pledge  of  serving  not 
only  its  members  but  also  the  entire  cooperative  movement. 

The  membership  of  the  Universal  Federation  at  the  close 
of  1 91 9  included  the  following: 

948  societies  for  cooperative  credit  (people's  banks) 

3  joint  stock  corporations  doing  the  same  business 

I  limited  partnership  with  transferable  shares 

252  societies  for  conducting  cooperative  stores 

I  joint  stock  corporation  for  the  same  purpose 

165  cooperative  societies   formed  for  carrying  on  special 
kinds  of  production  or  trade 

229  cooperative  building  societies 

i  1  W.  Wygodzinski,  op.  cit.,  p.  no. 


154  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [154 

7    joint  stock  corporations  which  were  doing  the  work  of 

cooperative  building  societies 
17    joint  stock  companies  with  limited  liability  doing  the 

same  work 
20    Chambers  of  Commerce,  Congresses  of  Handworkers 

and  other  membership  corporations,  forming  a  total  of 

1643    members  of  the  Universal  Federation. ^ 

The  development  of  the  membership  in  the  federation  is 
shown  by  the  following  table. 

Year  People's     Cooperative     Building      Associations  for    Total 

Banks  Stores         Societies        Special  Trades 

1859  27  27 

1861   109  21  130 

1865  447  25  43  515 

1870 721  97  I  26  845 

1875  822  237  16  57  1132 

1880 812  200  2  44  1058 

1885  824  171  I  37  1033 

1890 1043  284  5  29  1361 

189s  954  454  II  57  1476 

1900 939  583  53  S8  1633 

1905  966  273  112  66  1417 

1910  961  285  183  68  1497 

1915  980  285  217  77  1559 

1919 952  253  253  165  1623 

The  Structure  of  the  Universal  Federation,  as  provided 
for  by  the  constitution,  includes  the  following  organs  or 
official  representatives  of  the  movement: 

1.  The  Subordinate  Leagues 

2.  The  Federation's  Convention 

3.  The  Plenary  Committee  (Gesamtausschuss) 

4.  The  Smaller  Committee  (Engere  Ausschuss),  and 

5.  The  Counsel.^ 

Each  of  these  bodies  deserves  at  least  a  brief  consideration. 

1  Criiger,  Jahrbuch  des  Allegemeinen  Verhandes  fUr  1918,  p.  129. 

2  H.  Criiger,  Jahrbuch  des  Allgemcinen  Verhandes  filr  1918,  p.  128. 


155]     SELF-SUPPORTING  COOPERA  TIVE  SOCIETIES       1 5 5 

The  subordinate  leagues,  since  their  formation  in  1862, 
have  been  charged  with  the  task  of  looking  after  the 
peculiar  interests  of  their  own  members.  Furthermore, 
ever  since  the  passage  of  the  statute  of  1889,  these  leagues 
have  been  in  the  custom  of  registering  as  authorized  audit- 
leagues  and  have  discharged  the  duty  of  examining  the 
condition  of  member  banks. 

Membership  in  these  leagues  is  restricted  to  cooperative 
societies  which  are  willing  also  to  join  the  Universal  Fed- 
eration. The  leagues  are  in  fact  the  dues-collecting  agen- 
cies of  the  Universal  Federation.  Further  qualifications 
are  usually  either  geographical  or  functional.  The  ap- 
plicant society  must  either  be  located  in  a  certain  region  or 
must  be  doing  work  of  a  certain  kind. 

The  more  important  of  these  two  lines  of  division  is  the 
geographical.  When  the  leagues  were  first  formed,  this 
geographical  division  was  imperative  because  the  law  was 
different  in  each  of  the  various  German  States.  The 
statutes  of  1867  ^^^  1868  removed  some  of  this  need,  but 
the  geographical  division  has  continued  to  be  the  most  im- 
portant for  various  reasons.  In  the  first  place  it  was  per- 
haps expected  that  members  would  sometimes  attend  pro- 
vincial conventions  who  could  not  afford  the  time  or  ex- 
pense incident  to  a  long  trip  to  a  national  convention. 
With  the  course  of  time  this  reason  has  become  re- 
latively unimportant  because  of  the  extraordinarily  low 
passenger  fares  in  Germany.  At  present  the  national  con- 
vention is  much  larger  than  all  the  provincial  conventions 
put  together.  The  second  reason  for  geographical  or  pro- 
vincial organization  lies  in  the  fact  that  business  conditions 
and  problems  are  not  uniform  throughout  Germany.  The 
third  reason  lies  in  the  fact  that  the  administrative  officials 
who  must  be  dealt  with  are  usually  provincial  officers. 
Finally,  the  smaller  the  area  covered  by  an  audit  league  the 


156  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [156 

more  effective  will  audit  become  provided  the  league  is  large 
enough  to  keep  a  first-class  auditor  fully  employed.  These 
leagues  also  render  some  service  to  member  banks  by  putting 
banks  which  desire  to  borrow  in  touch  with  possible  sources 
of  funds.  Most  important  of  all  perhaps,  they  gather  up 
the  experience  of  the  local  communities  and  transfer  it  to 
the  Counsel.  The  Federation  is  much  too  large  to  permit 
the  Counsel  to  visit  every  bank  even  at  long  intervals.  It 
would  be  difficult  to  maintain  close  contact  by  correspond- 
ence alone;  but  by  visiting  some  thirty-two  local  conven- 
tions and  on  each  of  these  convention-days  meeting  the  re- 
presentatives of  some  fifty  cooperative  societies  the  Counsel 
can  keep  in  fairly  close  touch  with  each  of  the  1600  local 
associations.  To  accomplish  even  this  much  the  Counsel 
or  some  representative  must  travel  almost  constantly 
throughout  the  summer.  The  league  conventions  usually 
begin  about  the  end  of  May  and  there  are  likely  to  be  some 
as  late  as  the  end  of  August.  To  a  very  considerable  ex- 
tent this  traveling  has  in  times  past  been  done  by  the  Counsel 
himself.  This  maintenance  of  contact  between  the  central 
administration  and  the  local  associations  is — next  to  their 
function  of  audit  and  examination — perhaps  the  greatest 
service  of  these  provincial  leagues. 

With  the  growing  importance  of  some  of  the  special 
forms  of  cooperation,  these  territorial  leagues  had  to  be 
supplemented  by  leagues  of  a  different  type.  There  began 
to  be  a  demand  for  traveling  auditors  who  were  especially 
familiar  with  the  work  of  building  societies  or  of  coopera- 
tive stores.  The  importance  of  this  is  likely  to  be  under- 
estimated unless  it  is  borne  continuously  in  mind  that  these 
traveling  auditors  are  much  more  than  auditors  or  even 
accountants.  They  are  peripatetic  advisers  as  to  business 
policy.  And  a  man  who  can  wisely  advise  the  managers  of 
a  cooperative  store  as  to  business  policy  is  too  valuable  a 


ic^y-^     SELF-SUPPORTING  COOPERATIVE  SOCIETIES       157 

man  to  waste  on  mere  accountancy  work  for  some  associa- 
tion doing  a  business  with  which  he  is  not  especially  famil- 
iar and  which  he  could  serve  as  an  accountant  only.  There 
are  to-day  therefore  no  less  than  six  special  leagues  for 
cooperative  stores,  four  special  leagues  for  building  associa- 
tions, eleven  leagues  designed  especially  to  serve  people's 
banks  and  finally  there  are  eleven  leagues  which  admit  co- 
operative societies  doing  business  of  any  kind,  though  banks 
form  the  majority  in  most  of  these  leagues.  There  were 
thus  within  the  Universal  Federation  in  191 9  thirty- two 
subordinate  leagues. 

These  thirty-two  subordinate  leagues  were  very  unequal 
in  size.  But  between  them  they  included  1550  of  the  Fed- 
eration's 1623  member  associations.  The  ^2)  organizations 
which  were  members  of  the  Universal  Federation  but  were 
not  members  of  any  league  included  apparently  ^  a  small 
group  of  cooperative  associations  in  the  kingdom  of 
Wiirttemberg,  a  very  few  scattered  associations  and  all  the 
chambers  of  commerce,  congresses  of  handworkers,  etc. 
which  naturally  needed  no  audit. 

The  management  of  these  leagues  varies  somewhat,  but 
is  usually  confided  to  either  a  board  of  officers  or  a  league 
manager.  In  the  latter  case  a  league  secretary  is  usually 
also  elected.  These  officers  are  sometimes  elected  directly 
by  the  league,  but  frequently  the  league  elects  only  a  cer- 
tain cooperative  society  as  manager.  In  this  latter  case  the 
managing  cooperative  society  elects  a  manager  or  a  board 
of  officers  from  among  its  own  board  of  officers  or  board 
of  supervisors.^  As  may  be  imagined,  the  duties  of  these 
officers  are  rather  simple,  except  for  the  one  great  duty  of 
appointing    the    auditor    and    sometimes    a    legal    adviser. 

1  Cf.  H.  Criiger,  Jahrbuch  des  Allgemeinen  Verhandes  fur  JQIS,  p.  II3 
M  seq.  and  part  ii,  p.  86  et  seq. 

2  W.  Wygodzinski,  op.  cit.,  p.  112. 


158  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [158 

But  such  officers,  once  appointed,  usually  hold  office  indefi- 
nitely. The  ordinary  routine  duties  of  league  officials 
consist  then  only  of  collecting  dues  from  the  member  asso- 
ciations, collecting  their  annual  reports  and  arranging  for 
the  (rather  tiny)  annual  convention  of  the  league. 

In  one  of  these  leagues,  namely,  the  Subordinate  League 
for  Pomerania  and  the  Outlying  Districts  of  the  Electorate 
of  Brandenburg,  the  managing  society  has  won  a  position 
as  a  genuine  central  bank  for  the  league.  Other  people's 
banks  in  the  league  have  become  members  of  this  bank  at 
Stettin,  carry  deposits  there  regularly,  and  borrow  there  as 
need  arises.^  This  is  quite  different  from  the  formation  of 
cooperative  centrals,  that  is,  associations  whose  only  real 
members  are  other  cooperative  associations,  because  this 
league  had  but  thirty-five  member  associations  in  191 5 
while  the  Stettin  Bank  itself  had  a  membership  of  more 
than  fifteen  hundred.^  Thus  an  overwhelming  majority 
of  the  members  of  this  bank  were  natural  persons.  And 
even  this  degree  of  concentration  seems  to  be  highly  unusual. 

One  further  result  of  the  existence  of  these  leagues  seems 
to  have  been  to  give  a  fair  degree  of  prominence  to  the  post 
of  league  manager.  It  seems  probable  that  able  men  have 
been  held  in  the  cooperative  movement  and  induced  by  this 
prestige  to  serve  not  only  their  own  bank,  but  also  a  whole 
group  of  banks  in  their  province  or  state.  The  success  of 
any  'business  depends  fundamentally  upon  the  ability  and 
interest  of  the  men  who  guide  it.  To  an  American  it  would 
look  as  if  the  cooperative  movement  had  taken  every  pos- 
sible opportunity  to  use  prestige  as  well  as  liberal  remunera- 
tion as  inducements  to  keep  able  men  in  the  movement. 

The  second  of  the  Universal  Federation's  official  organs 

1  R.  Finck,  op.  cit.,  p.  67. 

^H.  Criiger,  Jahrhuch  des  Allgemeinen  Verhandes  fur  19 1 5. 


1^9]     SELF-SUPPORTING  COOPERATIVE  SOCIETIES       159 

is  its  Annual  Convention,  der  Allegemeine  Genossenschafts- 
tag.  This  is  a  large  body.  Its  attendance  frequently  ex- 
ceeds the  combined  attendance  at  all  the  conventions  of  the 
subordinate  leagues.  Any  member  of  any  cooperative 
society  belonging  to  the  federation  is  entitled  to  attend. 
Any  member  of  the  board  of  officers  or  board  of  supervisors 
of  any  corporation  or  other  organization  which  has  joined 
the  federation,  is  also  entitled  to  take  part  in  the  meetings. 
Other  people  are  given  the  privilege  of  membership  by  vote 
of  the  convention  itself.  Attendance  is  not  limited  strictly. 
Effort  is  directed  rather  toward  making  it  a  big  and  en- 
thusiastic gathering. 

This  great  gathering  with  its  set  speeches  delivered  in  a 
hall  so  large  that  only  a  powerful  voice  can  make  itself 
heard  and  understood  from  any  part  of  the  room  except 
the  front  platform,  is  in  theory  the  governing  body  of  the 
federation.  It  may  amend  the  constitution  of  the  federa- 
tion and  may  thus  lawfully  do  anything  not  prohibited  by 
the  general  law  of  the  land.  In  theory  it  is  the  sole  final 
authority.  | 

In  practice  leadership  is  enormously  important  in  so 
large  a  body  and  the  constitution  of  the  federation  has  set 
up  a  machinery  which  provides  an  effective  and  fairly  re- 
sponsible leadership.  But  certain  matters  must  still:  be 
voted  on  by  the  Convention  itself.     These  include  ^ 

(a)  the  amendment  of  the  constitution; 

(b)  the  determination  of  the  conditions  on  which  the 
Counsel  is  to  be  appointed,  the  election  of  that  official 
and  the  approval  of  the  contract  made  with  him ; 

(c)  the  election  of  members  of  the  Smaller  Committee; 

(d)  the  recognition  of  (new)  subordinate  leagues; 

(e)  the  expulsion  of  members ; 

1  W.  Wygodzinski,  op.  cit.,  p.  113. 


l6o  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [i6o 

(f)  the  approval  of  the  budget  covering  the  receipts  and 
the  expenses  for  the  next  ensuing  year ; 

(g)  the  approval  of  the  federation's  accounts  for  the  year 
that  has  passed  and  the  discharge  of  the  Counsel 
from  responsibility  for  money  so  spent ; 

(h)  the  determination  of  the  annual  dues  which  mem- 
bers must  contribute  toward  the  expenses  of  the 
federation ; 

(i)  motions  which  may  be  made  by  the  Counsel,  the 
Smaller  Committee,  the  Larger  Committee,  a  sub- 
ordinate league  or  a  member  association ; 

(j)  the  appointment  of  the  periodical  which  is  to  serve 
as  the  official  organ  of  the  federation ; 

(k)   rendering  judgment  in  case  of  complaints; 

(1)    the  dissolution  of  the  federation. 

The  third  official  representative  of  the  Universal  Federa- 
tion is  the  Plenary  Committee.  Its  membership  is  not 
elected.  It  is  therefore  not  responsible  to  the  Federation's 
Convention.  It  thus  constitutes  the  first  element  in  the 
machine  for  supplying  leadership  to  that  convention.  Its 
members  hold  office  ex-oMcio.  They  are  the  heads  of  the 
thirty-two  subordinate  leagues. 

The  duties  of  the  Plenary  Committee  include 

(a)  the  formulation  of  expert  opinion  upon  questions  of 
fundamental  significance  for  the  cooperative  move- 
ment, upon  request  from  the  Counsel  or  from  the 
Smaller  Committee; 

(b)  the  confirmation  or  rejection  of  the  man  nominated 
by  the  Smaller  Committee  to  fill  the  Counsel's  place 
in  case  the  latter  should  become  incapacitated; 

(c)  the  confirmation  of  the  appointment  of  the  deputies 
who  are  to  represent  the  Counsel  at  Conventions  of 
the  subordinate  leagues ; 


j6i]    self-supporting  cooperative  societies     i6i 

(d)  provisional  decision  on  the  order  of  business  for  the 
convention ; 

(e)  provisional  approval  of  the  accounts  for  the  previous 
year  and  the  budget  for  the  year  following; 

(f)  placing  motions  before  the  annual  convention; 

(g)  summoning  a  special  Convention  when  that  seems 
desirable; 

This  Plenary  Committee  is  itself  too  large  to  act  as  a 
g^enuine  steering  committee.  Furthermore,  it  meets  rather 
rarely.  It  is  an  essential  part  of  the  machine,  but  its  pur- 
pose is  the  ratification  rather  than  the  initiation  of  policy. 

The  fourth  official  representative  of  the  Universal  Fed- 
eration is  the  Smaller  Committee.  This  consists  of  seven 
members,  who  are  elected  by  the  Annual  Convention;  but 
the  Convention's  choice  is  by  the  constitution  limited  to 
members  of  the  Plenary  Committee  or  to  the  official  assis- 
tants of  these  members  of  the  Plenary  Committee.  This 
Smaller  Committee  is  an  active  and  powerful  body.  Its 
duties  include 

(a)  the  preparation  of  the  election  of  the  Counsel  and 
the  appointment  of  a  Deputy  Counsel  in  case  the 
former  is  incapaciated ;  (Preparation  of  the  election 
under  German  practice  seems  to  include  both  nomina- 
tion and  also  a  considerable  degree  of  official  care 
that  the  official  nominee  is  actually  elected.) 

(b)  the  approval  of  all  contracts  which  the  counsel  may 
make  with  subordinate  officials  and  employees ; 

(c)  supervision  over  the  entire  official  conduct  of  the 
Counsel  including  the  rendering  of  judgment  when 
complaints  are  made  against  him;  (Such  judgments 
however  remain  subject  to  review  by  the  Federa- 
tion's Convention). 

(d)  the  appointment  of  the  day  for  the  annual  Con- 


1 62  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [162 

vention  and  the  preparation  of  the  order  of  business 
for  that  body  (both  of  these  duties  however  are 
to  be  performed  only  in  cooperation  with  the  Federa- 
ation's  Counsel). 

(e)  auditing  the  accounts  for  the  last  year  and  prepar- 
ing the  budget  for  the  next,  and  the  submission  of 
both  of  these  to  the  Plenary  Committee ; 

(f)  the  approval  of  all  expenditures  which  exceed  the 
budget  appropriation; 

(g)  the  investment  of  all  funds  belonging  to  the  federa- 
tion; 

(h)  the  ratification  of  all  contracts  which  impose  obliga- 
tions upon  the  federation/ 

The  last  of  the  official  representatives  of  the  Universal 
Federation  is  its  Counsel.  But  this  representative  is  unique 
in  that  he  is  also  the  sole  legal  representative  of  the  Federa- 
tion. He  is  in  himself  the  entire  board  of  officers  and  may 
therefore  execute  contracts  which  are  binding  upon  the 
Federation,  even  though  not  approved  by  any  of  the  other 
official  representatives.  1 

The  duties  of  the  Counsel  include 

(a)  official  representation  of  the  cooperative  movement 
by  speeches  and  publications,  and  especially  the  re- 
presentation of  the  movement  in  matters  of  legisla- 
tion and  contact  with  government  officials; 

(b)  the  encouragement  of  the  various  cooperative 
societies  by  giving  them  information  and  advice; 

(c)  the  preparation  and  publication  of  statistics  on  co- 
operation and  the  editing  and  publication  of  the 
federation's  periodical,  now  the  Blatter  fiir  Genos- 
senschaftswesen ; 

(d)  the  summoning  of  the  convention  of  the  federation^ 

;  1  W.  Wygodzinski,  op.  cit.,  p.  no. 


163]     SELF-SUPPORTING  COOPERATIVE  SOCIETIES       163 

the  preparation  and  execution  of  its  decisions  and 
the  pubHcation  of  a  detailed  report  of  its  proceed- 
ings; 

(e)  participation  in  the  conventions  of  the  federation 
and  its  subordinate  leagues  either  in  person  or  by 
representative ; 

(f)  responsibility  for  the  property  and  accounts  of  the 
federation. 

The  Counsel  is  normally  the  presiding  officer  at  both  the 
provincial  and  national  conventions,  though  this  duty  even 
in  the  national  convention  is  occasionally  performed  by 
proxy.  In  all  meetings  as  large  as  these  national  conven- 
tions the  power  of  the  presiding  officer  to  recognize  speakers 
and  to  fail  to  recognize  them  is  one  important  element  in 
the  control  of  the  gathering's  decisions.  In  addition  to  the 
Counsel's  power  to  influence  the  convention's  decisions  in 
this  fashion,  there  is  also  the  great  influence  which  he  can 
as  editor  wield  in  the  choice  of  articles  to  be  printed  in  the 
Federation's  official  periodical.  The  Federation  has  thus 
elected  for  itself  a  powerful  and  almost  self -perpetuating! 
leadership. 

But  this  leadership,  if  powerful,  is  by  no  means  irres- 
ponsible. Particularly  in  the  case  of  the  Counsel  is  this 
responsibility  brought  home.  The  Counsel  is  subjected  to 
a  pitiless  light  of  continuous  publicity.  Nor  does  his  posi- 
tion protect  him  in  the  least  from  a  most  vigorous,  pointed 
and  often  very  personal  type  of  heckling  from  any  coopera- 
tor  who  opposes  his  policies.  The  Counsel  is  held  morally 
responsible  for  the  conduct  and  the  success  of  the  whole 
Federation.  It  is  relatively  easy  to  "  railroad  "  a  convention, 
but  the  Counsel's  task  is  not  simply  to  "  railroad  "  through 
the  resolutions  he  wants  to  have  passed,  but  also  to  choose 
for  passage  those  resolutions  which  will  keep  his  great 
Federation  an  effective,  united  body.     To  do  that  he  must 


l64  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [164 

conciliate  as  well  as  lead,  and  he  must  choose  with  exceed- 
ing care. 

In  1 91 9  the  federation  completed  its  sixtieth  year  as  a 
going  organization.  It  is  a  remarkable  fact  that  in  all  that 
time  it  has  had  but  three  chief  executives.  The  office  of 
Counsel  has  virtually  become  a  life-work  for  its  incumbent. 
The  publicity  of  the  work  has  thus  brought  it  about  that  a 
man's  success  or  failure  in  life  depends  upon  his  success  or 
failure  in  the  conduct  of  that  work.  And  the  work  has  been 
well  done. 

Below  the  Counsel  there  are  to  be  found  a  number 
of  other  officials.  These  of  course  do  most  of  the  actual 
work,  but  they  are  all  responsible  to  the  Counsel.  None  has 
any  independent  authority,  though  it  is  a  customary  courtesy 
for  the  Counsel  to  delegate  to  some  of  these  men  occasion- 
ally part  of  those  duties  which  would  bring  the  functionary 
into  prominence,  such  as  presenting  motions  or  presiding 
over  sessions  of  the  annual  convention.  The  contributions 
necessary  to  maintain  all  this  bureaucracy  averaged  for  a  con- 
siderable period  four-fifths  of  the  net  profits  of  each  mem- 
ber association  up  to  the  amount  of  100  marks  ($25). 
This  graduated  scale  encouraged  many  poor  societies  to  join 
which  would  have  been  deterred  by  a  straight  membership 
fee  of  $25  a  year,  and  these  poor  societies  are  just  the  as- 
sociations which  most  need  the  aid  and  advice  which  the 
bureaucracy  could  give.^ 

In  conclusion  it  may  be  pointed  out  that  within  the  Uni- 
versal Federation  the  real  policy-determining  'body  is  to  be 
found,  not  in  the  federation's  annual  convention,  but  in  the 
Counsel  and  his  thirty-two  league  managers,  working" 
through  either  the  Smaller  or  the  Plenary  Committee.  This 
is  a  small  body  to  decide  the  affairs  of  a  federation  at  whose 

1  R.  Finck,  op.  cit.,  p.  64. 


165]     SELF-SUPPORTING  COOPERATIVE  SOCIETIES       165 

convention  nearly  600,000  people  have  the  right  to  vote. 
Occasionally  of  course  the  "  machine  "  is  over-ruled,  but 
these  cases  of  failure  to  carry  the  convention  seem  to  occur 
chiefly  when  there  has  been  a  previous  disagreement  among 
the  small  group  of  responsible  leaders. 

With  respect  to  the  position  of  the  Convention,  it  is  ob- 
vious that  the  Federation  could  have  decided  to  make  its 
Convention  a  genuine  policy-determining  body.  But  in  that 
case  it  would  probably  have  been  necessary  to  restrict  its 
size  and  to  make  sure  that  it  fairly  represented  the  coopera- 
tive movement  as  a  whole  and  not  merely  those  associations 
which  happened  to  be  nearest  the  chosen  meeting  place.  In 
that  case,  also,  it  would  probably  have  been  necessary  to  re- 
strict attendance  to  delegates  elected  in  some  definite  propor- 
tion of  membership.  The  other  alternative  has  been  to  leave 
the  convention  open  to  all  members  of  every  member  associa- 
tion and  to  secure  fairness  and  continuity  in  the  decisions 
by  creating  bodies  which  virtually  decide  in  advance  how 
motions  shall  be  presented  and  what  motions  shall  be  passed. 
This  second  alternative  has  been  chosen,  and,  as  a  result  of 
that  choice,  the  annual  Convention  now  serves  well  another 
purpose,  equally  important,  namely,  that  of  imparting  to  the 
individual  members  of  the  Universal  Federation  both  in- 
formation and  a  very  considerable  degree  of  enthusiasm. 


CHAPTER  X 
The  Schulze-Delitzsch  People's  Bank  in  Operation 

In  the  preceding  chapters  the  evolution  of  the  Schulze- 
DeHtzsch  cooperative  movement  and  the  structure  of  its 
leading  organization  have  been  traced  in  some  detail.  It 
seems  desirable  now  to  revert  to  the  basic  unit  of  that  move- 
ment and  to  review  briefly  the  work  of  the  local  people's  bank. 
Subject  to  the  rules  outlined  by  Schulze-Delitzsch  the  third 
people's  bank  began  business  in  Delitzsch  in  the  summer  of 
1852.  Because  the  conduct  of  the  1848  bank  at  Brussels 
and  the  1850  bank  at  Eilenburg  have  exercised  so  little 
direct  influence  on  the  conduct  of  later  cooperative  banks, 
this  institution  is  the  one  whose  policies  form  the  starting 
point  from  which  has  developed  the  financial  plan  of  the 
modern  people's  bank/ 

The  bank  at  Delitzsch  began  by  offering  interest  at  the 
rate  of  five  per  cent  to  all  who  would  deposit  money  with  it. 
This  rate  was  considerably  above  that  offered  to  depositors 
by  the  local  savings  bank.  This  rate  of  interest  when  com- 
bined with  the  security  offered  by  the  unlimited  liability  of 
the  bank's  members,  appealed  to  people  who  were  saving 
money.  The  bank's  deposits  grew,  slowly  at  first,  but  after 
a  while  more  rapidly.  In  a  short  time  they  had  reached  a 
point  where  the  deposits  offered  exceeded  the  demand  for 
loans.     It  was  then  possible  to  reduce  the  rate  "of  interest 

1  C/.  Schulze-Delitzsch,  Vorschuss  und  Kredit-Vereine  als  Volksbanken 
^eighth  edition,  Berlin,  1915),  revised  by  H.  Criiger. 

166  [166 


167]  PEOPLE'S  BANK  IN  OPERATION  167 

offered  to  depositors,  and  consequently  the  rate  charged  to 
borrowers.  In  1855  the  society  was  offering  4j^%  to  de- 
positors. This  was  still  one  per  cent  more  than  the  muni- 
cipal savings  bank  was  offering,  and  the  society  furthermore 
was  willing  to  accept  accounts  as  small  as  twenty-five  cents. 
Many  of  the  accounts  actually  were  of  very  small  amounts, 
but  they  were  numerous  enough  so  that  their  total  was  a 
very  respectable  sum. 

The  next  problem  was  to  build  up  the  union's  capital. 
This  was  destined  to  serve  as  a  guaranty  fund  to  protect 
both  borrower  and  member,  a  sort  of  first  line  of  defense 
before  it  became  necessary  to  fall  back  on  the  member's 
personal  liability  for  the  society's  debts.  A  second  and 
more  important  purpose  lay  in  the  fact  that  by  compelling 
members  to  save  it  would  turn  them  into  small  capital- 
ists,^ creditors  as  well  as  debtors.  They  would  thus  get  a 
different  point  of  view.^  Finally  the  growth  of  this  ac- 
count would  supply  the  association  with  a  fund  of  capital 
independent  of  the  vagaries  of  the  association's  creditors. 

This  share  capital  differed  from  the  shares  of  stock  in  a 
joint  stock  corporation  in  two  respects.^  The  shares  were 
not  paid  in  at  once,  but  in  installments.*  The  money  paid 
in  did  not  become  the  permanent  property  of  the  society, 
but  was  withdrawn  by  the  member  when  he  withdrew.  In 
all  these  respects  the  Schulze-Delitzsch  societies  were  like 
the  savings  and  loan  associations.  The  policy,  common  to 
these  two,  of  doing  business  with  a  variable  capital,  a  capital 
whose  size  depends  on  the  number  of  members  entering  or 
resigning  from  the  organization,  has  presented  many  diffi- 

'R.  Finck,  op.  cit.,  p.  30. 
'W.  Wygodzinski,  op.  cit.,  p.  51. 
•R.  Finck,  op.  cit.,  p.  26. 
*R.  Finck,  op.  cit.,  p.  30. 


l68  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [i68 

culties,  but  it  was  a  fundamental  part  of  the  plan  of  the 
cooperatives. 

Sixteen  thalers,  or  $12.  was  set  as  the  par  value  of 
shares  in  this  first  union  in  Delitzsch.  This  amount  was 
so  much  smaller  than  the  amount  customary  in  cooperative 
savings  and  loan  associations  that  the  difference  is  striking. 
But  the  latter's  policy  of  requiring  monthly  "  dues  "  or 
minimum  payments  on  the  share,  was  taken  over  intact  as 
was  also  their  dividend  policy.  In  order  to  induce  members 
to  save  as  much  as  possible,  Schulze-Delitzsch  decided  to  pay 
pretty  high  dividends,  if  possible.  These,  however,  were 
not  paid  out  in  cash,  but  were  credited  to  the  member  as 
part  payment  on  his  share.  Only  after  the  shares  were 
fully  paid  could  the  member  draw  his  dividends  in  cash. 

Schulze-Delitzsch's  first  plan,  as  has  been  said,  was  to 
build  up  the  society's  owned  capital  so  that  borrowed  capital 
would  be  unnecessary.  But  this  proved  to  be  both  impos- 
sible and  unnecessary.  Later  he  strove  to  keep  the  owned 
capital  up  to  one-half  the  borrowed  capital,  that  is,  up  to 
one-third  of  the  whole.  This  ideal  many  of  his  organiza- 
tions have  reached.  But  new  societies  generally,  and  many 
others  as  well,  fall  far  below  this  standard.^  Consequently 
the  average  ratio  for  his  societies  has  always  been  far  below 
this  ideal.  The  average  ratio  of  owned  capital  to  bor- 
rowed capital  has  fluctuated  from  less  than  20  per  cent  in 
the  early  days  to  a  maximum  of  34  99/100  per  cent  in  1895. 
For  the  banks  as  a  whole  this  ratio  of  owned  capital  to 
borrowed  capital  has  therefore  never  yet  quite  equaled  35%. 
The  ratio  of  share  capital  to  total  assets  thus  has  never  yet 
equalled  26  per  cent.  The  year  1900  is  fairly  typical 
in  this  respect  and  in  that  year  the  average  ratio  of  owned 
capital  (surplus  plus  share  capital)  to  borrowed  capital  (de- 

•.     _~  *R.  Finck,  op.  cit.,  p.  31. 


169]  PEOPLE'S  BANK  IN  OPERATION  169 

posits  plus  loans  from  individuals  and  from  banks)  was 
about  thirty  per  cent.  Thus  owned  capital  has  in  general 
not  only  fallen  short  of  the  Schulze-Delitzsch  ideal  of  one- 
third,  but  in  a  typical  year  we  find  it  averaging  less  than  one 
fourth  of  the  total/ 

Conservatism  and  the  accumulation  of  large  capital  was 
ever  the  counsel  of  Schulze-Delitzsch  and  his  followers  in 
the  leadership  of  the  movement.  The  objections  to  this 
plan  lie  chiefly  in  the  greater  profitableness  of  doing  the  same 
business  with  a  smaller  capital.^ 

Schulze's  desire  for  conservatism  in  this  matter  is 
shown  very  quaintly  by  the  method  in  which  the  size  of  the 
shares  in  the  first  society  was  determined.  On  examina- 
tion it  appeared  that  members  needed  loans  to  the  amount 
of  3500  Thalers  (about  $2600).  There  were  220  members. 
The  former  divided  by  the  latter  gave  16  Thalers  or  $12, 
the  par  value  fixed  for  the  shares. 

At  the  present  time  shares  are  usually  fixed  at  round 
sums,  for  the  most  part  300,  500,  600  or  1000  marks.  In 
those  societies,  where  unlimited  liability  still  is  the  rule,  mem- 
bers usually  subscribe  for  only  one  share,  and  the  amount 
of  the  share  is  likely  to  be  fairly  high.  But  there  are  also 
societies  in  which  the  members'  liability  is  limited  to  a 
certain  number  of  times  the  value  of  his  shares.  In  these 
societies  it  is  not  unusual  for  members  to  subscribe  for 
more  than  one  share  and  the  par  of  each  share  is  usually 
one  of  the  smaller  sums. 

The  basis  on  which  dividends  should  be  distributed  has 
occasioned  much  discussion.  A  few  have  felt  that  a  purely 
cooperative  plan  required  that  dividends  should  be  divided 
evenly  among  members.     Each  member,  they  argue,  has 

^  Jahrbuch  des  Allgemeinen  Verhandes  fiir  1912,  p.  Ixxiii. 
■R.  Finck,  op.  cit.,  p.  32. 


1^0  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [170 

been  liable  for  the  debts  of  the  syndicate  and  has  thus  con- 
tributed towards  its  success.  More  have  felt  that  the  pro- 
fits should  be  distributed  in  proportion  to  the  business  done 
with  the  bank.  This  was  the  plan  of  the  cooperative  stores. 
It  was  the  plan  adopted  by  the  People's  Bank  of  Liege  not 
long  before  the  war.^  It  is  the  customary  policy  among 
the  French  institutions.  This  policy  has  also  had  a 
considerable  vogue  in  Italy  under  the  imported  name  of 
ristourne.  This  plan  has  the  advantage  that  it  divides 
the  profit  in  the  proportion  in  which  each  man  has  con- 
tributed to  the  immediate  source  of  these  profits.  Further- 
more it  reconciles  members  to  paying  higher  interest  rates; 
and  it  is  an  easy  matter  to  reckon  the  amount  of  interest 
each  man  has  paid  to  the  society.  The  result  desired  by  the 
advocates  of  this  plan  is  to  make  the  society  consistent  in 
its  purpose.  That  purpose  is  to  benefit  people  who  need 
loans  and  who  are  worthy  of  credit.  In  an  indirect  fashion 
the  representatives  of  this  set  of  views  long  ago  won  their 
point.  The  Schulze-Delitzsch  syndicates,  when  they  could 
afford  to  do  it,  have  set  interest  rates  below  competitive 
levels.  By  this  it  is  not  meant  that  a  poor  member  of  such 
an  organization  can  borrow  money  at  a  lower  rate  than 
can  a  well-to-do  customer  of  a  commercial  bank.  It  fre- 
quently happens  that  he  can  not  borrow  as  cheaply.  But  the 
Schulze-Delitzsch  societies  have  often  set  the  rates  which 
their  members  had  to  pay  at  a  point  lower  than  was  neces- 
sary to  secure  the  business.  Their  borrowers  often  have 
no  access  to  the  great  banks.  Rates  have  been  lower  than 
would  be  the  competitive  rates  for  these  same  men.  In 
this  indirect  fashion  then,  members  have  benefited  in  pro- 
portion as  they  have  borrowed  and  paid  interest. 

But  for  the  direct  division  of  the  net  profits,  Schulze- 

^  Henry  W.  Wolf,  People's  Banks  (London,  1919),  p.  164. 


j-ri]  PEOPLE'S  BANK  IN  OPERATION  lyi 

Delitzsch  elected  to  use  as  a  base  the  amount  of  capital  con- 
tributed by  each.  This  was  suggested  probably  by  the 
analogy  of  the  cooperative  savings  and  loan  associations. 
In  fact,  Schulze  seems  throughout  to  have  deviated  from 
that  general  plan  of  organization  only  where  there  was  a 
direct  and  obvious  reason  for  such  deviation.  However, 
in  this  particular  case  there  was  a  reason  for  following  their 
plan  and  for  basing  dividends  on  capital.  This  reason  lay 
in  the  peculiar  importance  of  capital  to  a  credit  institution. 
It  seemed  desirable  to  use  every  possible  legitimate  device  to 
induce  members  to  save  and  to  pay  for  their  shares. 

In  some  of  the  larger  and  richer  cooperative  societies,  this 
policy  of  high  dividends  has  caused  people  to  join  simply 
for  the  sake  of  the  dividends.  When  this  begins  to  be  the 
case,  the  organization  is  on  the  road  toward  becoming  an 
ordinary  business  corporation.  It  means  that  dividends, 
not  service  to  members,  is  becoming  the  society's  goal. 
Under  the  legal  definition  of  cooperation,  such  organizations 
would  no  longer  be  cooperative.  Such  a  possible  source 
of  weakness  is  of  course  inherent  in  the  Schulze-Delitzsch 
dividend  policy.  But  high  dividends  of  themselves  are 
justifiable,  so  long  as  they  do  not  become  an  end  in  them- 
selves but  are  merely  a  means  to  an  end.^  In  this  case  that 
end  is  to  secure  loans  for  members ;  the  high  dividends  are 
a  means  of  attracting  capital  which  is  necessary  to  the 
achievement  of  this  end. 

In  this  connection,  however,  must  be  recorded  one  of  the 
most  unpleasant  developments  within  the  cooperative  field. 
In  Galicia,  where  the  local  Polish  and  Ruthenian  popula- 
tion is  pretty  unbusinesslike,  there  were  in  191 4  a  number 
of  people's  banks,  managed  often  by  Jews,  which  made  a 
regular  practice  of  charging  interest  rates  distinctly  above 

1  Cf.  R.  Finck,  op.  cit.,  p.  34  flf. 


1^2  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [172 

those  charged  elsewhere.  A  somewhat  similar  situation 
seems  to  have  developed  in  some  parts  of  Hungary,  while 
even  from  within  Germany  itself  there  have  been  complaints 
that  usurers  have  been  allowed  to  join  the  people's  banks 
and  thus  to  borrow  at  low  rates  money  which  was  lent  out 
again  at  a  profit  to  the  usurer.  Luckily  such  situations 
seem  to  have  been  quite  infrequent.^ 

The  alternative  use  for  net  earnings  is  to  accumulate  them 
as  a  surplus  or  reserve  for  bad  debts.  Finck  states  that  in 
the  first  union  in  Delitzsch  at  the  conclusion  of  the  first  year 
of  its  existence,  all  profits  were  devoted  to  surplus.  To 
this  surplus  also  were  devoted  all  initiation  fees.  As  the 
surplus  grew  and  membership  in  the  union  consequently  be- 
came more  valuable,  the  initiation  fee  in  the  Delitzsch  union 
was  slowly  increased  until  1855  when  it  was  finally  set  at 
what  then  seemed  a  considerable  total — sixty-two  cents !  In 
most  unions  now  the  fee  averages  from  75  cents  to  $2.50. 
With  initiation  fees  as  small  as  this  the  surplus  naturally 
is  now  chiefly  derived  from  that  portion  of  the  annual  pro- 
fits which  is  set  aside  regularly  for  the  purpose. 

Deposits  according  to  plan  were  received  from  any  one 
who  was  willing  to  trust  his  money  to  the  society.  But 
loans  were  made  to  members  only.  In  fact,  since  the  pas- 
sage of  the  statute  of  1889  loans  may  lawfully  be  made 
only  to  members.  But  this  statute  grants  exceptions  to 
permit  the  temporary  investment  of  surplus  funds  and  the 
regular  maintenance  of  deposit  accounts  in  banks  of  the 
ordinary  type. 

In  granting  loans  to  members,  it  is  no  part  of  the  co- 
operative plan  to  grant  loans  equally  to  all  members.  Loans 
are  granted  only  when  the  credit  seems  safe.  Thus  there 
are  always  those  who  feel  injured  because  they  have  not 

1  H.  W.  Wolf,  op.  cit.,  pp.  181-183. 


173]  PEOPLE'S  BANK  IN  OPERATION  173 

been  treated  as  well  as  their  neighbors.  Some  of  these  are 
people  who  join  the  cooperatives  after  they  have  been  re- 
fused credit  at  the  regular  banks.  Others  are  merely  self- 
confident  people  who  overestimate  their  own  capacities. 
Whatever  the  cause,  it  seems  to  be  an  essential  weakness  of 
cooperation  that  those  who  have  been  refused  credit,  feel 
aggrieved  in  greater  measure  than  if  refused  by  ordinary 
banks.  Business  men  who  are  refused  by  the  regular  banks, 
are  likely  to  keep  quiet  about  it.  If  they  are  refused  credit 
by  the  officers  of  their  own  society,  they  are  likely  to  de- 
nounce not  only  those  particular  officers,  but  also  the  whole 
cooperative  movement  as  well.^ 

Loans  are  granted  as  in  ordinary  banks  after  considering 
the  applicant's  character,  his  capacity  and  his  capital.  But 
it  seems  fair  to  say  that  character  is  a  more  important  con- 
sideration than  it  is  in  ordinary  banking,  and  far  more  im- 
portant than  it  is  in  the  usual  banking  practice  of  large 
cities,  where  of  necessity  the  bankers  often  can  know  but 
little  of  their  customers  and  are  compelled  to  pay  more 
attention  to  the  applicant's  capital. 

Even  in  the  people's  banks  absolutely  unsecured  loans  are 
rarely  granted.  In  the  Delitzsch  union  such  loans  were 
made,  but  only  up  to  the  amount  of  the  paid-in  portion  of 
the  member's  share  plus  three  dollars.  Lending  on  the 
security  of  the  society's  own  shares  also  soon  was  recog- 
nized as  unwise,  because  this  in  effect  reduced  the  capital 
which  formed  the  union's  guaranty  of  good  faith  toward 
its  own  creditors.  Such  loans  are  still  granted.  But  they 
are  opposed  by  the  leaders  of  the  movement  and  are  granted 
only  in  small  amounts,  for  short  periods  of  time  and  then 
as  exceptions. 

At  the  other  extreme,  loans  secured  by  the  pledge  of  the 

1  R.  Finck,  op.  cit.,  p.  39- 


174  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [174 

notes  of  the  borrower's  own  customers  or  other  gilt-edged 
collateral  would  naturally  be  just  the  kind  of  business  which 
the  cooperatives  would  most  desire.  But  of  this  they  se- 
cure little  for  the  reason  that  the  ordinary  commercial  banks 
are  ready  to  make  such  loans,  and  can  usually  do  it  more 
cheaply.  Security  of  a  less  liquid  type  is,  however,  fre- 
quently offered  and  accepted.  This  is  inevitable  because  it 
is  security  of  this  kind  which  the  small  business  man  pos- 
sesses. A  certain  amount  of  loans  are  even  protected  by 
mortgages.^  The  society  can  get  as  security  only  what  the 
borrower  is  able  to  offer. 

The  great  bulk  of  the  cooperative's  loans,  however,  are  on 
personal  security.  By  this  the  Germans  mean,  not  the 
specific  pledge  of  personal  property,  but  rather  promises  to 
pay  secured  by  the  guaranty  of  one  or  more  people  other 
than  the  borrower.  This  guaranty  may  take  several  forms. 
One  of  the  simplest  is  by  endorsement  such  as  would  ap- 
pear on  two-  or  three-name  paper  in  this  country.  Origin- 
ally most  of  these  loans  were  made  on  the  borrower's  pro- 
missory note.  This  is  still  true  in  the  south  and  west  of 
Germany.  But  the  cooperative  banks  have  educated  Ger- 
mans of  the  middle  class  in  the  use  of  the  bill-of-exchange. 
Thus  now  in  both  the  centre  and  north  of  Germany  the 
commonest  single  instrument  received  is  the  accepted  bill- 
of-exchange. 

This  successful  popularization  of  the  bill  of  exchange  is 
all  the  more  interesting  because  as  recently  as  1878  while  a 
usury  law  was  under  consideration,  the  German  Reichstag 
seriously  considered  the  advisability  of  prohibiting  its 
use  by  just  those  classes  of  people  who  now  form  the  back- 
bone of  the  cooperative  movement,  namely,  wage-earners, 
farmers  and  master-artisans.     At  that  time  many  thought 

1  H.  Criiger,  Jahrhuch  des  Allgemeinen  Verhandes  fur  19 12,  p.  Ixix. 


175]  PEOPLE'S  BANK  IN  OPERATION  175 

that  such  people  would  draw  bills  of  exchange  only 
when  they  were  to  be  discounted  at  rates  higher  than  that 
permitted  by  the  law/  though  there  was  a  second  objection 
to  the  use  of  bills  of  exchange  by  farmers  and  artisans  in 
that  German  law  gives  more  protection  to  the  holder  of  an 
accepted  bill  of  exchange  than  to  the  holder  of  a  promissory 
note  and  there  was — in  1878  at  least — reason  for  wonder- 
ing whether  people  without  business  training  ought  to  sub- 
ject themselves  to  the  harsher  rules  of  the  law  governing 
bills  of  exchange.^ 

But  all  of  these  forms  are  insignificant  in  importance 
when  compared  with  the  volume  of  business  done  in  Konto- 
Kiirrent  or  "  cash  credit  ".  In  the  English-speaking  coun- 
tries this  type  of  business  is  common  only  in  Scotland,  the 
country  of  its  origin.  But  it  seems  to  be  extremely  com- 
mon all  over  Europe  among  joint-stock  banks  as  well  as 
among  their  more  modest  rivals.  By  this  system  a  man  is 
allowed  interest  at  one  rate  on  his  deposit  balance  when  he 
has  one,  but  part  of  the  bank's  agreement  with  him  is  that 
he  shall  be  allowed  at  his  option  to  overdraw  his  account  up 
to  a  certain  specified  amount.  On  these  overdrafts  he  is 
charged  interest  at  a  second  and  higher  rate.  So  long  as 
his  overdraft  does  not  exceed  the  specified  limit  no  objec- 
tion is  made.  Overdrafts  of  this  kind  constituted  nearly 
six  hundred  million  marks,  or  more  than  half  of  the  total 
loans  outstanding  in  a  group  of  888  people's  banks  belong- 
ing to  the  Universal  Federation  at  the  close  of  1918.^ 

These  overdrafts  or  cash  credits  are  sometimes  called 
"character  credit."  But  they  are  character  credit  in  a 
technical   sense   only.     They  are  not   normally  unsecured 

*R.  Finck,  op.  cit.,  p.  42. 

'H.  W.  Wolf,  People's  Banks  (fourth  edition,  London,  1919),  p.  89. 

•  H.  Criiger,  Jahrhuch  des  Allgemeinen  Verhandes  fiir  19 18. 


1^6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [iy6 

loans.  The  total  volume  of  such  unsecured  overdrafts  at 
the  close  of  191 8  was  only  33  million  marks,  a  sizable  sum, 
but  tiny  in  comparison  with  the  secured  overdrafts  which 
amounted  to  more  than  565  millions.  The  nature  of  the 
security  given  for  these  overdrafts,  however,  is  such  as  to 
give  considerable  warrant  to  the  custom  of  calling  them 
"  character  credit."  The  security  is  not  property,  but  the 
written  guaranty  of  one  or  more,  generally  two,  neighbors. 
Almost  never  do  these  neighbors  demand  special  legal  pro- 
tection from  the  men  whose  borrowings  they  guarantee,  and 
the  bank  normally  makes  no  special  demands  on  them. 
The  bank  depends  on  the  honor  of  the  borrower  and  his 
two  guarantors.  The  guarantors  depend  entirely  on  the 
honesty,  thrift  and  reliability  of  the  borrower.  In  a  very 
real  sense,  then,  these  loans  on  Konto-Kurrent  are  genuine 
"  character  credit." 

The  period  for  which  a  loan  should  be  allowed  to  run 
has  occasioned  much  discussion.  In  the  Universal  Federa- 
tion this  period  is  usually  set  at  three  months.  But  ex- 
tensions are  fairly  common.  The  report  for  the  various 
associations  of  this  type  in  19 12  showed  that  extensions  to 
the  amount  of  997  million  marks  had  been  granted  during 
the  year.^  This  is  to  be  compared  with  3988  million  marks 
of  new  loans  granted  during  the  same  period.  Presumably 
the  figures  for  loans  outstanding  at  the  close  of  the  year,  if 
available,  would  show  about  the  same  proportions,  though 
naturally  the  totals  would  be  much  smaller.  Extensions 
may  therefore  be  estimated  at  about  one-fifth  of  the  total. 

Finck  states  that  these  people's  banks  usually  require  the 
repayment  of  one-tenth  of  the  original  loan  when  they 
grant  extensions.'     But  this  practice  is  certainly  not  uni- 

"^  Jahrbuch  des  Allgemeinen  Verhandes  fur  1912,  p.  Ixxvi. 
2  R.  Finck,  op.  cit.,  p.  43. 


177]  PEOPLE'S  BANK  IN  OPERATION  jyy 

versal  among  the  Schulze-Delitzsch  banks.  It  was,  how- 
■ever,  the  general  Schulze-DeUtzsch  ideal  not  to  lend  money 
for  periods  longer  than  the  notice  required  of  depositors 
before  withdrawal.  When  compared  with  American  bank- 
ing practice  such  a  rule  seems  excessively  conservative  and 
even  unprogressive.  The  policy  of  requiring  part  payment 
of  the  principal  of  the  loan  on  each  renewal  date  when 
loans  run  for  such  short  periods  in  the  first  instance,  in 
so  far  as  this  policy  is  common  among  the  people's  banks, 
certainly  does  have  the  effect  oi  keeping  the  debtor's  obli- 
gation constantly  before  his  eyes.  Besides  this,  it  is  some- 
times easier  to  pay  off  a  debt  in  this  fashion  than  it  would 
be  to  pay  it  back  in  one  lump  sum  at  the  end  of  thirty 
months,  assuming  for  the  moment  that  the  loan  would  be 
allowed  to  run  so  long.  Probably  the  greatest  effect  of  this 
policy  has  been  to  increase  the  use  of  cash  credits  or  over- 
drafts where  the  borrower  has,  within  limits,  rather  greater 
freedom,  and  to  reserve  the  use  of  negotiable  instruments 
for  those  exceptional  cases  when  exceptional  care  is  needed 
in  any  event. 

The  maximum  amount  which  may  be  lent  to  any  one 
member  is  set  by  the  by-laws  of  each  society.  During  the 
earliest  years  of  the  bank  at  Delitzsch  this  permissible  maxi- 
mum was  fixed  at  fifty  Thalers  ($37.50).  By  1855  this 
limit  had  been  increased  to  200  Thalers  ($150.00).  By 
1900  there  were  many  people's  banks  (probably  a  consider- 
able majority)  whose  by-laws  would  permit  the  manage- 
ment to  lend  as  much  as  10,000  marks  ($2500.)  to  one 
member.  By  1906  there  was  one  Schulze-Delitzsch  society 
in  Berlin  in  which  the  management  under  certain  restric- 
tions might  make  loans  to  one  person  totalling  $1125,000 
(500,000  marks ).^     But  it  must  be  remembered  that  these 

1  R.  Finck,  op.  cit,  p.  344- 


1^8  THE  EVOLUTION  OF  PEOPLES  BANKS  [i-rg 

limits  are  naturally  set  far  above  the  average  granted,  and, 
furthermore,  that  this  one  cooperative  bank  in  Berlin  was 
distinctly  exceptional.  The  total  loans  of  all  these  organi- 
zations outstanding  at  the  close  of  1900,  when  divided  by 
the  number  of  members,  gave  an  average  loan  of  less  thea 
$300.  per  member/  Of  course  in  any  one  year  many 
members  (approximately  half  in  fact)  do  not  borrow  at 
all.  Therefore  the  average  line  of  credit  is  considerably 
higher  than  $300.  In  19 18  the  total  loans  outstanding 
divided  by  the  number  of  members  who  had  received  loans 
at  some  time  during  the  year  was  about  5300  marks.  Al- 
lowance must  then  be  made  for  the  fact  that  many  members 
who  borrow  during  the  year  are  not  in  debt  to  the  bank  at 
the  close  of  that  time.  Thus  the  average  line  of  credit 
granted  members  in  191 8  had  grown  to  an  amount  that  was 
certainly  not  less  than  6000  marks,  but  the  significance  of 
these  figures  is  of  course  greatly  injured  by  the  current  in- 
flation. 

Fixing  the  rate  of  interest,  naturally,  has  always  involved 
a  conflict  of  desires.  It  brings  out  sharply  the  difference 
of  opinion  which  has  already  been  suggested  in  the  discus- 
sion of  dividends.  The  members'  interests  as  receivers  of 
loans  are  directly  opposed  to  their  interests  as  share-holders 
and  receivers  of  dividends.  Schulze-Delitzsch  decided  that 
in  an  organization  free  from  charity  members  ought  to  pay 
not  simply  the  market  rate  of  interest.  They  ought  rather 
to  pay  enough  to  cover  (i)  the  interest  the  society  was 
paying  depositors,  (2).  the  costs  of  management,  and  (3)' 
possible  losses.  In  the  first  union  the  interest  offered  to 
depositors  was  five  per  cent.  The  costs  were  estimated  at 
3%.  Then  after  allowance  had  been  made  for  possible 
losses,  members  were  required  to  pay  on  their  borrowings 
an  average  rate  of  14.3%. 

1  Jahrbuch  des  Allgemeinen  Verhandes  fur  1912,  p.  Ixxii. 


lyg-j  PEOPLE'S  BANK  IN  OPERATION  179 

This  rate  was  probably  not  excesssive  in  view  of  the  cir- 
cumstances of  the  society  and  of  its  members  at  that  time. 
Naturally,  as  time  went  on,  and  as  the  society  prospered,  its 
rate  of  interest  fell.  By  1855-56  it  was  down  to  10%. 
By  1860-61  it  was  8%  and  by  the  close  of  the  century  it 
averaged  from  5%  to  7%/ 

In  this  connection  it  must  be  remembered  that  the  prime 
purpose  of  the  society  never  was  to  secure  for  members 
loans  at  especially  favorable  rates,  but  rather  to  secure  for 
members  at  ordinary  rates  if  possible,  loans  which  they 
could  not  otherwise  secure  at  any  price.  Before  these  co- 
operative banks  were  organized  some  of  these  men  were 
paying  money-lenders  5%  a  month,  and  Schulze-Delitzsch 
cited  one  case  of  a  loan  at  the  rate  of  730%  a  year.  Even 
at  the  close  of  the  last  century  when  other  sources  of  capital* 
were  far  more  readily  available  than  in  1850,  there  could  be- 
little doubt  about  the  fact  that  at  5%  to  7%  members  of  these- 
banks  were  securing  short-term  loans  more  readily  than 
they  could  have  done  otherwise.  The  Schulze-Delitzsch. 
people's  banks  were  doing  their  job.  { 

1  R.  Finck,  op.  cit.,  p.  45. 


CHAPTER  XI 
The  Structure  of  a  People's  Bank 

The  preceding  chapter  was  confined  to  a  description  of 
the  financial  plan  and  of  the  work  or  functions  of  the 
Schulze-Delitzsch  bank.  It  is  desira;ble  also  to  know  some- 
thing of  its  organization  or  structure. 

Democratic  self-government  was  the  fundamental  prin- 
ciple of  Schulze's  first  bank.  Originally  this  meant  that 
almost  everything  was  managed  by  a  meeting  of  all  the 
members,  known  as  the  general  assembly.  As  time  went 
on  and  business  grew  more  complex  as  well  as  more  volu- 
minous, it  became  necessary  to  delegate  a  very  considerable 
amount  of  authority  to  subordinate  bodies.  Thus  at  the 
present  time  the  internal  organization  of  many  Schulze- 
Delitzsch  cooperatives  has  departed  very  far  from  the 
original  simple  democratic  ideal.  But  very  considerable 
remnants  of  this  original  idea  are  still  to  be  found  in  one 
form,  that  of  local  self-government.  The  general  organi- 
zation of  the  Schulze-Delitzsch  movement  has  little  authority 
over  the  individual  banks.  There  are  requirements  for  mem- 
'bership  in  this  general  organization,  but  these  requirements 
are  of  the  most  general  character  only  and  no  bank  is  under 
any  obligation  to  become  a  member.  Thus  there  is  local 
autonomy.  Subject  only  to  the  law  of  the  realm,  each  bank 
draws  up  its  own  articles  of  agreement  or  constitution. 
Subject  to  these  articles  of  agreement  or  constitution,  each 
is  governed  in  the  last  analysis  by  its  own  general  assembly 
or  members'  meeting. 

i8o  [i8o 


l8i]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  jgi 

Within  the  rather  Hberal  limits  set  in  this  fashion  the 
structure  of  the  various  Schulze-DeUtzsch  people's  banks 
has  varied  considerably.  The  structure  of  the  average  bank 
has  shown,  however,  a  fairly  steady  tendency  toward  an 
increasing  complexity,  and  with  it  a  steadily  increasing  con- 
centration of  authority  in  the  hands  of  the  officers. 

During  the  first  few  months  of  the  life  of  the  first 
Schulze-Delitzsch  bank,  its  organizer  found  it  advisable  to 
subordinate  immediate  efficiency  to  the  task  of  interesting 
and  educating  its  members.  This  he  did  by  having  many 
of  the  bank's  functions  performed  by  all  the  members  to- 
gether in  order  to  make  members  realize  their  liability  for 
the  society's  obligations.  For  example,  the  bank's  pass- 
books and  promissory  notes  were  at  first  countersigned  by 
all  members.  The  officers  were  allowed  to  sign  for  small 
amounts  only  or  for  short  periods.  But  as  the  number  of 
members  and  volume  of  business  both  grew,  this  soon 
became  impossible.^ 

Even  at  first,  however,  there  was  a  so-called  "  com- 
mittee".  A  by-law  passed  in  the  year  1853,  that  is,  after 
the  union  had  been  in  operation  only  a  year,  prescribed  that 
"  all  demands  and  propositions  made  to  the  union,  particu- 
larly requests  for  loans,  must  be  presented  to  the  committee 
in  writing.  The  committee  is  to  decide  on  these  matters 
in  its  meetings,  is  to  provide  for  securing  the  capital  neces- 
sary, the  collection  of  what  is  due  and  is  to  keep  business 
going  in  an  orderly  fashion.  For  the  despatch  of  current 
business  there  shall  be  each  week  a  regular  meeting  of  the 
committee." 

This  "  Committee "  consisted  of  the  president,  the 
treasurer,  the  secretary  and  nine  members.  For  the  more 
convenient    despatch    of    routine    business    there    was    a 

1  R.  Finck,  op.  cit.,  p.  47  et  seq. 


l82  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [182 

"  smaller  committee  '^  consisting  of  the  three  officers.  But 
for  all  important  business  such  as  admitting  new  members, 
borrowing  money  or  making  loans,  it  was  necessary  to 
secure  the  approval  of  the  whole  committee. 

The  officers  of  this  first  union  included  in  the  first  place 
Schulze-Delitzsch  as  president  and  manager.  In  this  cap- 
acity he  presided  (i)  at  meetings  of  the  "smaller  com- 
mittee "  of  officers,  (2)  at  meetings  of  the  full  "  com- 
mittee"  and  (3)  at  meetings  of  all  members.  The  second 
officer  was  the  treasurer,  who  was  at  one  and  the  same  time 
cashier  and  book-keeper.  The  third  officer  or  secretary  was 
also  the  auditor  and  was  charged  with  a  supervision  of  the 
treasurer's  work.  To  prevent  possible  collusion  between 
these  two  and  to  keep  the  control  in  the  hands  of  the  com- 
mittee, the  treasurer  was  prohibited  from  paying  out  money 
except  upon  an  order  signed  by  the  president  and  one  other 

ittee." 

corresponded  pretty  closely  to  the 
board  of  directors  of  a  modern  American  corporation.  The 
smaller  committee  of  officers  in  some  respects  corresponds 
with  the  "  executive  committee  "  or  "  finance  committee  ", 
as  it  exists  in  many  of  our  corporate  enterprises.  The  dif- 
ference between  the  two  lies  chiefly  in  the  composition  of 
Schulze's  "  smaller  committee ".  It  is  not  customary  in 
this  country  to  have  such  an  executive  committee  consist 
exclusively  of  the  officers  who  are  in  active  charge  of  the 
business.  Such  was  the  case  in  this  first  Delitzsch  union 
and  such  has  remained  the  case  throughout  most  of  the 
Schulze-Delitzsch  movement.  But  this  contrast  disappears 
if  we  compare,  not  the  membership,  but  the  work  which  the 
committee  had  to  do.  To  a  very  considerable  extent  the 
work  of  this  "  smaller  committee ''  was  that  which  would 
in  an  American  corporation  be  entrusted  to  a  general  *'  ex- 
ecutive committee  ".     Finally,  decision  on  most  important 


183]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  183 

matters  lay,  not  with  the  committee,  but  with  the  whole 
board.  But  to  the  committee  was  entrusted  the  general 
task  of  seeing  that  the  business  was  properly  operated  and 
preparing  recommendations  for  the  larger  "committee  "  or 
board  of  directors. 

To  Germans  this  method  of  organizing  a  bank  seems  in- 
efficient in  that  it  does  not  separate  supervision  and  manage- 
ment. They  feel  that  a  management  which  was  vested  in 
a  large  committee  or  board  would  either  be  slow  and  in- 
effective or  the  work  of  the  board  would  in  fact  be  done  by 
a  smaller  group  whose  real  authority  would  then  be  greater 
than  their  responsibility.  Supervision  on  the  other  hand, 
would  also  become  ineffective  because  the  people  who  were 
to  do  the  supervising  were  the  same  people  who  were  re- 
sponsible for  the  management.  For  this  reason  the  super- 
vision and  management  of  German  corporations  are,  in 
legal  theory  at  least,  sharply  separated. 

Toward  such  a  separation  of  functions  the  German  co- 
operatives also  tended  as  their  business  grew  larger  and  more 
complicated.  This  change  was  finally  recognized  in  the 
German  cooperative  law.  Therefore  to  understand  a 
Schulze-Delitzsch  bank  at  the  present  time  it  is  necessary 
to  understand  at  least  six  institutions.  These  six  institu- 
tions are  (i)  German  statute  law;  (2)  the  constitution  and 
by-laws  of  the  particular  cooperative  society;  (3)  the 
society's  general  assembly;  (4)  the  society's  board  of 
supervisors;  (5)  its  board  of  officers,  and  finally  (6)  its 
minor  officials  and  committees. 

The  evolution  of  statute  law  may  be  briefly  summarized 
here.  In  1863  Schulze  launched  his  campaign  for  a  statute 
which  would,  among  other  things,  give  his  organizations  a 
corporate  entity  with  the  right  to  sue  and  to  be  sued.  His 
campaign  led  to  the  enactment  of  the  Prussian  law  of  March 
27,    1867.     The  first  statute  was  adopted  by  the  North- 


l84  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [184 

German  Confederation  July  4,  1868  and  went  into  effect 
January   i,    1869.  1 

About  seven  years  later  Schulze  began  to  feel  that  some 
amendments  were  desirable.  For  some  time  little  was  done ; 
but  during  the  months  immediately  preceding  his  death  in 
1883,  he  put  his  proposals  into  book  form.  These  proposals 
included  permission  to  organize  societies  with  limited 
liability.  Ultimately  they  largely  influenced  the  epoch-mak- 
ing law  of  May  i,  1889.  I 

A  third  statute  was  passed  on  August  12,  1896.  This 
third  law,  however,  was  chiefly  concerned  with  other  forms 
of  cooperative  activity.  Finally,  the  introduction  of  a  new 
commercial  code  in  1897  made  necessary  another  revision 
which  was  promulgated  by  the  German  Imperial  Chancellor 
on  May  20,  1898  as  a  fourth  law  which  then  went  into  effect 
on  January  i,  1900.^  ! 

In  this  outHne  of  the  legislation  no  attempt  has  been  made 
to  compare  the  provisions  of  the  various  statutes.  It  will 
be  in  most  cases  more  convenient  to  study  briefly  the  various 
regulations  in  connection  with  the  institutions  regulated. 
Only  two  exceptions  to  this  policy  must  be  made. 

In  the  first  place  it  must  be  remembered  that  for  nearly  a 
generation  these  organizations  were  subject  to  no  special 
statute,  and  had  no  special  protection  from  theft  or  fraud. 
Their  legal  status  at  this  time  would  perhaps  correspond 
most  closely  to  that  of  "  voluntary  associations  "  under  our 
common  law.  If  one  faction  should  happen  to  secure  a 
majority  at  a  meeting  and  divert  the  funds  in  a  fashion 
injurious  to  the  others,  these  others  would  be  substantially 
helpless  because  the  association  could  sue  only  when  all 
members  joined  in  the  suit.  This  condition  has  now  been 
remedied   for   those   associations   which   come   within   the 

1  W.  Wygodzinski,  op.  cit.,  p.  32  et  seq. 


185]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  185 

Statutory  definition  of  cooperative  societies  and  also  elect  to 
register  and  assume  the  obligations  of  registered  coopera- 
tive societies.  The  statutory  definition  was  made  sufficiently 
liberal.  It  included  every  association  which  possesses  the 
following  three  qualifications:  (i)  whose  membership  is 
not  restricted  to  any  particular  number,  (2)  whose  purpose 
is  to  further  the  business  interests  of  its  members,  and  (3) 
whose  method  of  accomplishing  this  is  that  of  carrying  on 
some  business  on  joint  account.  This  definition  of  course 
excludes  on  the  one  hand  unions  whose  aims  are  idealistic, 
and,  on  the  other,  corporations  and  partnerships.  But  the 
terms  of  the  law  are  so  generous  that  practically  only  two 
groups  of  cooperative  societies  have  failed  to  register.  In 
the  first  place  there  are  a  very  few  quite  large  cooperative 
associations  (mostly  rural)  whose  business  is  so  complex! 
and  varied  that  not  all  parts  of  it  can  be  fiitted  under  such 
a  definition.  These  then  have  not  registered.  In  the 
second  place,  there  are  a  great  many  small  or  temporary 
cooperative  societies  to  whom  registration  seemed  only  to 
involve  added  trouble  and  expense.  These  also  have  failed 
to  register.^  No  special  restrictions  are  laid  down  for  these 
unregistered  cooperative  societies  and  no  society  is  compelled 
to  register.  The  first  aspect  of  the  statute  then  is  wholly 
benevolent.  : 

The  second  aspect  of  the  statute  applies  only  to  those 
associations  which  elect  to  register.  On  these  it  imposes 
the  compulsory  biennial  examination. 

This  requirement  of  regular  examination  was  imposed 
only  after  various  leagues  had  been  conducting  such  ex- 
aminations for  nearly  a  quarter  of  a  century.  Thus  the 
statute  as  finally  passed  makes  examination  by  an  official  ap- 
pointed by  a  league  registered  for  that  purpose  the  standard 

1  W.  Wygodzinski,  op.  cit.,  p.  34  et  seq. 


l86  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [i86 

form  of  examination.  Leagues  are  admitted  to  registra- 
tion for  this  purpose  on  two  conditions :  ( i )  their  con- 
stitutions must  make  satisfactory  provision  for  the  appoint- 
ment of  examiners  and  for  the  nature  of  the  audit  that 
is  to  be  conducted  by  them;  (2)  they  must  give  evidence  that 
they  really  are  in  a  position  to  conduct  such  examinations 
properly.  Leagues  may  also  be  deprived  of  their  registra- 
tion on  two  conditions:  (i)  if  they  break  the  law,  as,  for 
example,  by  engaging  in  business  on  their  own  account  or 
by  engaging  in  any  pursuits  other  than  those  specifically 
permitted  to  audit-leagues  by  the  statute;  (2)  if  they  fail 
to  perform  properly  their  duty  of  audit  and  examination. 

For  those  cooperative  associations  which  register  under 
the  law  but  join  no  audit-league — and  there  are  over  3000 
of  these — the  law  prescribes  a  different  method  for  the  ap- 
pointment of  examiners.  In  these  cases  it  becomes  the 
duty  of  the  board  of  officers  to  apply  to  the  state  court  for 
the  appointment  of  an  examiner.  It  is  the  duty  also  of 
this  board  to  nominate  men  for  this  position.  When  finally 
one  of  these  nominees  seems  satisfactory  to  the  higher 
officials  on  whom  this  duty  devolves,  the  court  commissions 
him  to  do  the  work.  The  examiner  is  legally  entitled  to 
receive  from  the  association  audited  a  fee  and  reimburse- 
ment for  any  money  he  may  be  compelled  to  expend  in 
making  the  examination.  The  board  of  officers  is  required 
to  give  the  examiner  free  access  to  all  the  property  and 
records  of  the  association.  The  board  of  supervisors  is 
required  to  assist  in  the  examination.  And  the  examiner's 
report  must  be  presented  to  the  general  assembly.  On  com- 
pleting his  work,  the  examiner  gives  to  the  board  of  officers 
a  certificate  to  this  effect  which  they  in  turn  are  required  to 
have  filed  in  the  public  records. 

Examination  by  auditors  appointed  in  this  unusual 
fashion  is  generally  regarded  as  less  satisfactory  than  ex- 


187]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  187 

amination  by  league  auditors.  The  men  secured  in  this 
unusual  fashion  are  under  no  pressure  to  hold  down  their 
expenses,  though  their  fees  may  have  been  agreed  upon  be- 
fore their  nomination.  Practically  never  are  they  so  skilled 
as  the  league-auditors.  It  is  difficult  to  find  either  a  busi- 
ness man  or  a  public  official  who  knows  the  technical  as  well 
as  the  accounting  side  of  the  cooperative's  business.  Prac- 
tically never  are  the  auditors  appointed  in  this  unusual 
fashion  so  interested  in  making  their  examination  effective 
and  useful.  Only  league  audit,  for  example,  could  give  rise 
to  comparisons  such  as  the  following  study  of  182  (rural) 
cooperative  societies  in  Brandenburg.^ 

Excellent  Good  Fair  Poor 

Comptroller  8  100  67  7 

President   5                 7Z  93  ^ 

Board  of  Officers i                 55  113  I3 

Board  of  iSupervisors 3                 51  103  25 

Only  in  the  case  of  league-audit  does  the  examiner  return 
each  year  with  some  knowledge  of  the  particular  weaknesses 
to  be  looked  for  and  to  be  guarded  against. 

But  this  criticism  is  perhaps  small  in  comparison  with 
the  next,  a  criticism  which  applies  to  examination  of 
both  the  league  and  unusual  type.  After  the  examina- 
tion has  been  made  and  its  results  communicated  to 
the  board  of  supervisors  and  the  general  assembly  of 
members,  no  more  is  required.  No  matter  how  serious  are 
the  defects  discovered,  neither  the  auditor  nor  any  public 
official  has  the  right  to  intervene  and  set  things  right.  The 
audit-league  may  of  course  expel  a  member  association,  but 
fiuch  a  cutting-off  of  its  own  income  is  likely  to  occur  only 
in  extreme  cases.  And  even  in  those  extreme  cases  expul- 
sion does  not  remedy  the  defect  nor  protect  the  individual 

1  W.  Wygodzinski,  op.  cit.,  p.  95. 


1 88  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [i88 

member  of  the  mismanaged  association.  It  is  the  theory 
of  the  German  statute  that  sufficient  safeguards  have  already 
been  set  up  within  each  cooperative  association.  Any 
further  interference  by  the  government  or  by  any  outside 
body  would  merely  cause  a  loss  of  interest  and  of  a  sense  of 
responsibility  in  those  whose  duty  it  is  to  keep  things  right. 
Thus  the  German  law-makers  felt  that  the  last  state  of  the 
cooperative  movement  might  be  worse  than  the  first. 

To  remedy  the  defects  in  the  present  system  of  audit  many 
plans  have  been  offered.  Havenstein  has  proposed  that 
the  compulsory  examination  content  itself  with  merely  cer- 
tifying that  the  cooperative  has  not  broken  the  law.^  Thus 
all  problems  are  left  strictly  to  members.  This  would  give 
the  cooperative  a  position  more  like  that  enjoyed  by  business 
corporations  in  Germany.  On  the  other  hand,  Fassbender, 
the  noted  leader  in  rural  cooperation,  has  suggested  that 
there  should  be  two  compulsory  examinations,  one  by  a 
trained  accountant  and  one  by  a  man  trained  in  the  technique 
of  the  business  in  which  the  association  is  engaged.  The 
objection  to  Fassbender's  suggestion  lies  in  the  fact  that 
the  technical  examiner  would  virtually  be  compelled  to  go 
over  most  of  the  books  and  papers  examined  previously  by 
the  accountant.  The  expense,  therefore,  might  be  nearly 
twice  as  great  as  that  involved  in  the  present  system.  At 
present  neither  suggestion  seems  at  all  likely  to  be  adopted. 
That  Germans  are  pretty  well  content  with  their  present 
system  of  audit  is  shown  by  the  fact  that  the  statute  gives  to 
the  Imperial  Chancellor  the  power  to  draw  up  additional 
regulations  respecting  the  manner  of  examination,  the  form 
of  the  report,  etc.  This  power  he  has  never  used,  but  has 
preferred  to  leave  each  league  free  to  prescribe  that  method 
of   examination   which   is   thought  best   and   to  leave  the 

1  W.  Wygodzinski,  op.  cit.,  p.  96. 


iSg-j  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  189 

court-appointed  auditors  at  liberty  to  struggle  along  irt 
whatever  fashion  they  could. 

The  cooperative  statute  thus  provides  for  compulsory  in- 
vestigation but  for  no  corresponding  compulsory  process 
of  reform.  It  has  been  the  policy  of  the  government  to 
give  to  these  banks  the  greatest  possible  freedom.  Reform, 
if  forced  upon  the  bank,  must  be  forced  by  individuals  or 
by  other  bodies  within  the  association.  For  all  practical 
purposes,  then,  this  policy  has  tended  to  emphasize  the  im- 
portance of  the  other  five  institutions  which  combine  to 
make  up  the  people's  bank,  and  to  these  we  must  now  turn. 

The  second  of  the  institutions  which  must  be  studied 
in  order  to  understand  the  structure  of  the  people's  bank 
is  its  constitution  and  by-laws.  For  the  most  part  these 
may  be  amended  only  by  the  general  assembly.  For  those 
societies  which  now  register  under  the  law,  most  of  the  im- 
portant provisions  of  the  constitution  may  be  amended  only 
'by  the  votes  of  three  fourths  of  those  present  at  the 
meeting.  Furthermore  the  society  is  left  free  to  make 
amendment  even  more  difficult.  This  may  be  done,  for 
example,  by  requiring  a  large  quorum  to  be  present  before 
the  amendment  may  be  voted  on,  or,  requiring  that  the 
amendment  must  be  passed  at  two  successive  meetings.^  At 
first,  however,  there  was  of  course  no  such  legal  restriction. 

The  chief  provisions  which  have  normally  appeared  in  the 
constitution  and  by-laws  have  been : 

( 1 )  Name  and  location  of  the  society. 

(2)  The  purpose  of  the  organization. 

(3)  Manner  of  holding  the  general  assembly. 

(4)  Manner  of  publishing  official  notices  to  members. 

(5)  The  extent  of  a  member's  liability  for  the  debts  of 
the  society  (since  the  legal  introduction  of  limited 
liability) . 

1  W.  Wygodzinski,  op.  cit.,  p.  46. 


igo  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [190 

(6)  The  size  of  the  shares  and  the  manner  of  paying  for 
them. 

(7)  Manner  of  auditing  and  publishing  the  annual 
balance  sheet. 

(8)  The  reserves. 

(9)  Description  of  the  geographical  area  to  which  the 
business  transactions  of  the  particular  cooperative 
association  are  to  be  limited. 

(10)  Making  the  continuance  of  membership  depend  upon 
continued  residence  in  the  prescribed  locality. 

(11)  Fixing  the  society's  fiscal  year. 

(12)  Prescribing  the  extent  to  which  the  society's  officers 
may  do  business  with  non-members. 

(13)  Prescribing  the  method  of  amendment.  In  parti- 
cular it  has  been  customary  to  specify  in  detail  which 
by-laws  the  general  assembly  might  change  through 
a  simple  majority  vote  and  which  by-laws  might  be 
amended  only  with  the  approval  of  something  more 
than  a  majority. 

The  general  assembly,  our  third  institution,  is  theoreti- 
cally the  source  of  all  authority.^  This  perhaps  seems 
strange  when  there  have  just  been  pointed  out  such  serious 
limitations  on  its  authority  as  some  of  the  provisions  given 
above.  But  the  peculiar  position  of  the  general  assembly 
in  this  matter  can  best  be  understood  if  it  is  realized  that 
its  decisions  may  be  reversed  only  by  legal  procedure.  If 
the  general  assembly  by  vote  violates  the  society's  constitu- 
tion, that  vote  is  still  binding  on  the  officers  and  the  society 
until  such  time  as  it  may  be  set  aside  through  the  sloW 
machinery  of  the  law.  Furthermore  this  right  of  appeal 
to  the  courts  has  now  been  limited.  Not  every  member 
who  is  injured  by  the  bank's  change  of  policy  may  sue, 
but  only  the  following  eight  classes  of  people : 

1  W.  Wygodzinski,  op.  cit.,  p.  76  et  seq. 


I^i]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  191 

(i)  Those  members  who  were  present  at  the  meeting  in 
question  and  had  their  protest  against  the  motion 
recorded  in  the  minutes  of  the  meeting. 

(2)  Those  members  who  tried  to  be  present  but  were  un- 
lawfully excluded  from  the  meeting. 

(3)  Those  members  who  were  absent  because  they  were 
not  properly  notified  of  the  meeting. 

(4)  Those  members  who  were  absent  because  they  were 
not  properly  notified  of  the  purpose  for  which  the 
meeting  was  to  be  held. 

(5)  The  board  of  officers  because  they,  by  carrying  out 
the  assembly's  decision,  might  become  subject  to  legal 
penalties  or  jointly  liable  to  the  bank's  creditors. 

(6)  Individual  members  of  the  board  of  officers,  for  the 
same  reason. 

(7)  The  board  of  supervisors  because  they,  by  permit- 
ting the  decision  to  be  carried  out,  might  become 
subject  to  legal  penalties  or  joint  liability  to  creditors. 

(8)  Individual  members  of  this  board  of  supervisors. 

Even  after  a  litigant  proves  his  standing  and  his  right  to 
prosecute  a  suit,  the  courts  will  not  question  the  wisdom,  but 
merely  the  legality  of  an  assembly's  decisions.  Thus  al- 
though the  law  has  regulated  the  cooperatives  to  a  very 
considerable  degree,  it  still  tries  to  keep  in  principle  to  the 
original  basic  idea :  self-government  through  a  general  meet- 
ing of  all  members. 

The  cooperative's  character  as  a  self-governing  body  of 
neighbors  is  also  emphasized  in  another  direction  by  the 
rule,  long  current  but  now  reenforced  by  the  authority  of 
the  law,  that  each  member  should  have  but  one  vote.  This 
principle  of  only  one  vote  to  a  member  is  applied,  no  matter 
how  many  shares  the  member  may  hold,  and  regardless  of 
the  extent  to  which  it  may  be  one  member's  property  that 
gives  the  whole  association  standing  and  credit.     Further- 


ig2  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [192 

more,  to  insure  a  genuine  democracy  members  may  not 
exercise  this  right  through  proxies.  But  this  prohibition 
of  proxies  is  subject  to  several  exceptions.  Corporations 
and  associations  on  the  one  hand,  and  minors  on  the  other, 
may  not  vote.  These  disquaUfied  members  have  the  right 
to  be  represented  by  proxies,  but  no  other  proxies  are  al- 
lowed. Even  in  these  permitted  cases  no  man  may  hold 
two  proxies.  Thus  the  cooperative  form  of  organization 
prevents  the  situation  so  common  in  the  annual  meetings  of 
joint-stock  corporations  where  one  man  will  often  appear 
holding  proxies  for  a  large  majority  of  the  stock  and  the 
meeting  becomes  a  mere  formal  ratification  of  this  proxy- 
holder's  will.  In  the  cooperatives  there  has  been  a  real 
effort  not  simply  to  secure  the  benefit  of  the  interest  and 
intelligence  of  each  member,  but  also  to  achieve  the  forma- 
tion of  a  group  opinion  by  discussion. 

Meetings  of  the  general  assembly  are  held  on  the  call  of 
the  board  of  officers  or  of  the  board  of  supervisors.  Fur- 
thermore they  must  be  called  upon  the  petition  of  one  tenth 
of  the  membership.  Before  the  meeting  is  held,  each  mem- 
ber must  be  given  notice  at  least  one  week  in  advance. 
This  notice  must  include  a  statement  of  the  business  to 
come  before  the  meeting.  This  statement  of  the  motions  to 
come  before  the  meeting  must  now  reach  members  at  least 
three  days  before  the  meeting  itself ;  otherwise  the  assembly's 
decision  is  not  binding.  But  there  are  three  exceptions  to 
this  rule.  Motions  of  the  following  types  are  valid  even 
though  not  included  in  the  formal  notice:  (i)  the  regular 
order  of  business,  if  that  is  prescribed  in  the  by-laws;  (2) 
motions  which  decide  only  the  conduct  of  the  meeting,  not 
the  conduct  of  the  society's  business;  and  (3)  the  motion 
to  call  another  general  assembly. 

Under  the  present  German  law  the  General  Assembly  has 
the  right  to  determine  a  large  number  of  matters.  These 
include : 


ip3]  I'HE  STRUCTURE  OF  A  PEOPLES  BANK  193 

(i)  The  choice  of  mem'bers  of  the  board  of  supervisors, 
and  usually  of  the  board  of  officers  as  well.  Under 
the  present  German  law  supervisors  may  under  no 
cifcumstances  be  chosen  in  any  way  other  than  by 
the  general  assembly. 

(2)  The  dismissal  of  members  of  the  board  of  supervis- 
ors. Members  of  the  board  of  officers  also  may  be 
dismissed  by  the  general  assembly  and  by  them  alone, 
but  the  officers  may  also  be  temporarily  suspended 
by  the  board  of  supervisors. 

(3)  Regulating  the  right  of  officers  to  appoint  deputies 
to  perform  their  duties  for  them.  Such  deputies 
are  occasionally  necessary,  but  it  is  important  to 
restrict  their  choice  for  a  bank  may  be  wrecked 
as  easily  by  an  incompetent  deputy  as  by  an  incom- 
petent officer. 

(4)  The  decision  to  sue  members  or  former  members  of 
the  boards  of  supervisors  or  officers. 

(5)  The  creation  of  new  administrative  departments. 

(6)  The  dissolution  of  the  society,  if  that  seems  advisable. 

(7)  Limiting  the  extent  to  which  the  bank's  officers  may 
lend  the  society's  funds  to  any  one  member.  This 
limitation  of  the  maximum  loan  is  not  unlike  in 
theory  the  limit  prescribed  for  national  banks  by 
American  law.  It  is  based,  not  on  an  estimate  of 
the  richest  member's  ability  to  pay,  but  on  a  desire 
to  remove  from  the  management  some  of  the  tempta- 
tion toward  favoritism  and  excessive  risk. 

(8)  The  limitation  of  the  extent  to  which  the  society 
may  borrow  money  whether  in  the  form  of  loans  or 
savings  deposits.  Thus  it  may  be  possible  to  pre- 
serve a  proper  ratio  between  owned  capital  and  other 
liabilities.  In  dealing  with  such  a  bank  a  creditor 
need  not,  however,  investigate  these  decisions  of  the 


194  THE  EVOLUTION  OF  PEOPLE'S  BANKo  [194 

general  assembly  nor  inquire  into  the  extent  of  the 
bank's  liabilities.  As  to  outsiders  the  signature  of 
the  officers  is  binding  upon  the  society.  But  officers 
in  turn  become  liable  to  the  society  for  violations 
of  the  by-laws.  Hence  arises  the  importance  of 
the  power  of  the  general  assembly  to  sue  its  officials. 
(9)   The  determination  of  dividends. 

This  final  duty  is  one  that  merits  some  attention.  As 
has  been  pointed  out,  this  determination  of  dividends  has 
been  the  source  of  many  disputes,  one  of  which  has  been  of 
such  importance  that  it  has  already  been  discussed  in 
another  place.  But  even  after  a  general  policy  of  dividend 
distribution  has  been  decided  upon,  there  remains  always 
the  question,  how  much?  Many  members  will  of  course 
be  disposed  to  underestimate  future  risks  and  to  divide  at 
once  every  cent  possible.  Luckily  for  the  cooperative 
movement,  its  officers  in  recent  years  have  pretty  uniformly 
opposed  this  to  the  extent  of  their  ability.  The  custom  of 
paying  officers  a  percentage  of  the  net  earnings  has  worked 
for  conservatism.  / 

Excessive  dividends  are  not  now  common.  At  the  close 
of  the  year  191 1  for  example,  over  900  Schulze-Delitzsch 
banks  reported  their  dividends.  Of  these  only  two  distri- 
buted more  than  10  per  cent  on  their  shares.  349  societies 
distributed  6  per  cent,  231  gave  dividends  at  the  rate  of\ 
5  per  cent  while  124  distributed  7  per  cent  on  their  members* 
investment.  On  the  other  hand  only  14  of  those  which 
distributed  any  dividends  at  all,  distributed  less  than  4  per 
cent.  It  may  fairly  be  said  to  be  the  custom  to  pay  divi- 
dends of  5  to  7  per  cent.  These  figures  refer,  of  course,  to 
dividends  distributed,  not  to  net  profits  earned.^ 

1  H.  Cruger,  Jahrbuch  des  AUgemeinen  Verhandes  fiir  19 12,  p.  xcii 
et  seq. 


195]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  195 

Nor  may  the  General  Assembly  with  its  untrained  voters 
be  said  to  have  erred  in  the  direction  of  excessive  dividends 
if  we  measure,  not  the  absolute  height,  but  the  ratio  of 
dividends  to  net  earnings.  In  1911  the  profits  of  coopera- 
tives belonging  to  the  Schulze-Delitzsch  league  were  21.9 
million  marks.  O'f  this  amount  approximately  7.2  millions 
were  set  aside  by  the  assemblies  as  surplus,  12.8  millions 
were  distributed  as  dividends,  about  one  quarter  of  a  mil- 
lion was  spent  on  education,  the  balance  was  devoted  to  a 
number  of  miscellaneous  purposes. 

This  failure  of  the  members  to  take  any  unwise  advan- 
tage of  their  power  might  indicate  great  intelligence  and  self- 
control  on  their  part.  Or  it  might  indicate  the  fact  that 
individual  members  had  very  little  influence  on  the  actual 
conduct  of  affairs.  It  probably  indicates  both.  The 
people's  banks  have  been  of  enormous  educational  value. 
But  it  is  also  true  that  in  some  of  them  the  ordinary  member 
is  far  removed  from  the  administration. 

One  Schulze-Delitzsch  bank,  the  Agricultural  Credit 
Union  of  Augsburg,  had  11,857  members  in  191 1.  In  a 
group  of  nearly  twelve  thousand  people  there  is  very  little 
chance  for  much  personal  contact  among  members. 
The  officials  and  a  few  other  distinguished  members  could 
alone  be  widely  known  in  a  group  so  large.  They  alone 
could  have  much  influence.  The  ordinary  member  would 
be  unknown,  and  probably  without  much  influence  even  if 
he  were  to  speak  in  the  general  assembly.  Furthermore,  the 
affairs  of  such  a  bank  with  its  capital  and  surplus  of  more 
than  2,750,000  marks  and  its  loans  to  over  6,000  members 
are  too  complex  to  be  mastered  by  the  ordinary  member  who 
is  busy  about  other  things.  Under  these  conditions  the 
ordinary  member  might  well  hesitate  before  opposing  the 
officer  who  must  within  a  few  days  pass  upon  his  applica- 
tion for  a  loan.     The  general  assembly  in  many  of  the 


1^6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [196 

larger  unions  now  has  a  regular  meeting  but  once  a  year. 
Even  this  meeting  is  often  but  sHmly  attended.^  Wygod- 
zinski  even  speaks  of  the  danger  that  the  general  assembly 
may  become  as  farcical  as  the  annual  meeting  of  a  joint- 
stock  corporation.^ 

The  cooperative  banks  were  originally  designed  as  demo- 
cracies. With  their  success  in  this  form  many  of  them 
have  become  too  large  to  be  successfully  managed  as  pure 
democracies.  American  politics  is  not  the  only  field  from 
which  there  may  arise  a  "  boss ".  Some  of  the  more 
thoughtful  cooperative  leaders  are  therefore  now  discussing 
representative  government  within  the  cooperative  society. 
This  proposal  has  taken  the  definite  form  of  a  suggested 
**  Cooperative  Council  "  or  "  House  of  Representatives  " 
for  each  of  the  larger  people's  banks.  This  proposal  was 
tested  out  judicially  in  1910  and  declared  lawful.  The  de- 
tails of  this  plan  do  not  interest  us.  The  "  Council  "  is  not 
important  as  an  historic  fact,  but  rather  is  interesting  as  a 
comment  on  one  tendency  in  the  development  which  is  now 
going  on  within  the  general  assembly. 

But  it  is  not  safe  to  assume  that  all  people's  banks  have 
outgrown  the  possibilities  of  pure  democracy.  In  the  re- 
port of  the  general  Schulze-Delitzsch  movement  people's 
bank  number  i  is  the  great  society  in  Augsburg  cited  above, 
the  largest  of  the  Schulze-Delitzsch  banks.  But  people's 
bank  number  2  is  the  Loan  and  Savings  Union  in  Dillingen 
a/D.  Bavaria  with  but  85  members  and  of  whom  but  forty 
borrowed.  In  such  an  organization  a  pure  democracy  with 
a  genuine  control  by  the  General  Assembly  is  still  possible. 

Schmoller,  commenting  on  this  situation,  points  out  that 
the  larger  the  union,  the  less  influential  will  be  the  general 

1  R.  Finck,  op.  cit.,  p.  49. 

2  W.  Wygodzinski,  op.  cit.,  p.  81. 


^97]  ^^^  STRUCTURE  OF  A  PEOPLE'S  BANK  igy 

assembly,  while  the  more  influential  will  be  the  manage- 
ment. Therefore  not  all  the  cooperatives  show  this  ten- 
dency toward  centralization  to  the  same  extent/ 

Bernhard  in  his  book  on  The  Polish  Question  (Leip- 
zig, 19 1  o)  pointed  out  another  factor  which  might  weaken 
the  position  of  the  General  Assembly.  In  German  Poland 
political  considerations  caused  a  considerable  portion  of  the 
power  usually  exercised  by  the  Greneral  Assembly  to  be  trans- 
ferred to  the  board  of  supervisors,  and  this  board  had  been 
correspondingly  enlarged,  so  that  it  rarely  contained  less  than, 
nine  members.^ 

This  board  of  supervisors  which  Bernhard  mentioned  novr 
forms  the  fourth  institution  which  is  essential  to  a  Schulze- 
Delitzsch  bank.  It  may  consist  of  as  few  as  three  members^ 
but  usually  contains  nine,  and  sometimes  even  more.  The 
members  are  elected  by  the  general  assembly  for  a  term  of 
three  years,  with  the  elections  so  arranged  that  one  third  of 
the  members  retire  each  year. 

The  duties  of  this  board  include  watching  over  all  of  the- 
bank's  affairs  and  controlling  the  officers  or  actual  adminis- 
tration. To  enumerate  these  duties  more  specifically,  we- 
find  that  the  board  of  supervisors  elects  its  own  chairman. 
It  may  be  present  at  meetings  of  the  board  of  officers  and: 
usually  does  meet  with  them  once  a  week.  It  may  inspect 
books  and  property.  It  must  take  part  in  the  regular  annual; 
audit  of  the  bank's  affairs.  It  must  approve  the  bank's 
statements  and  any  proposals  for  the  division  of  profits. 
It  must  specifically  approve  any  loans  to  officers  or  any 
loans  where  the  necessary  guaranties  are  furnished  by  offi- 
cers. 

Furthermore,  the  by-laws  usually  delegate  to  this  board. 

1  Cf.  R.  Finck,  op.  cit.,  p.  49. 

2  Cf.  W.  Wygodzinski,  op.  cit.,  p.  83. 


ig^  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [198 

the  duty  of  admitting  new  members.  Usually  before  ad- 
mission two  members  of  the  board  investigate  the  candidate 
independently  of  each  other.  It  is  their  duty  also  in  the 
larger  banks  to  examine  periodically  the  record  and  cir- 
cumstances of  all  members.  The  results  of  this  examina- 
tion are  compiled  in  a  "  credit-list "  which  sets  for  each 
member  the  limit  beyond  which  officers  may  not  go  in  ex- 
tending credit.  In  the  smaller  unions  there  is  naturally 
rather  less  machinery.  In  them  it  is  customary  for  each 
loan  to  be  finally  approved  by  the  board  of  supervisors  after 
being  recommended  by  the  officers. 

Finally  the  board  of  supervisors  has  been  given  a  legal 
hold  on  the  entire  administration  by  the  statutory  grant  of 
authority  to  suspend  all  officers  and  to  operate  the  bank  for 
a  short  period.  In  this  case  it  must  call  a  general  assembly 
without  delay.  But  it  is  also  given  the  power  to  call  a 
general  assembly  at  any  time.  Its  responsibilities  thus  are 
very  great.  The  board  of  supervisors  differs  from  the 
board  of  directors  in  an  American  corporation  in  that  it 
can  not  act  independently  (except  for  the  limited  period 
mentioned  above).  It  may  prevent  the  granting  of  loans, 
it  may  not  grant  them  itself.  It  may  prevent  expenditure, 
it  may  not  spend.  Initiative  is  reserved  to  the  board  of 
officers.     The  supervisors  alone  may  not  bind  the  society. 

The  board  of  supervisors  differs  from  the  board  of  dir- 
ectors of  an  American  corporation  in  another  way  as  well. 
There  is  a  more  effective  machinery  for  holding  them  to 
account.  Supervisors  may  be  recalled  from  office  at  any 
meeting  of  the  general  assembly  by  a  vote  of  three-fourths 
of  those  present. 

In  addition  to  the  above  provision,  there  Is  the  legal 
liability  of  supervisors  to  the  bank  for  any  damage  which 
arises  because  of  their  neglect.  Under  the  law  supervisors 
are  required  to  exercise  the  "  care  of  an  ordinary  business- 


igg-j  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  199 

man  ".  Should  they  fail  to  do  this,  and  should  the  bank 
suffer  because  of  this  neglect,  they  are  personally  liable  for 
the  damage.  Not  only  are  they  responsible  for  any  damage 
because  of  their  own  neglect,  but  each  member  of  the  board 
is  responsible  for  the  neglect  of  any  other  member.  They 
are  jointly  as  well  as  individually  liable.  This  joint  and 
several  liability  for  any  loss  suffered  because  of  their 
neglect  to  use  the  "  care  of  the  ordinary  business  man  " 
sounds  like  a  pretty  complete  protection  for  members.  But 
the  extent  of  this  protection  depends  obviously  upon  what 
particular  things  the  courts  believe  an  ordinary  business 
man  would  always  be  careful  about.  Perhaps  it  is  because 
German  judges  have  been  so  distinctly  professional  rather 
than  business  men  that  they  have  not  been  very  familiar 
with  business  practice;  perhaps  it  is  because  they  desired  so 
to  define  the  rule  that  it  would  be  easily  enf orcible ;  perhaps 
they  desired  to  encourage  men  to  assume  these  posi- 
tions. At  any  rate  some  fairly  obvious  cases  of  neglect  of 
good  business  practice  have  been  allowed  to  pass.  The  care 
required  is  not  very  great.  But  the  law  does  seem  to  cover 
cases  where  a  supervisor  has  in  any  way  benefited  per- 
sonally from  this  neglect.  Thus  while  not  overstrict  in  its 
application  this  requirement  has  in  practice  been  substan- 
tially more  exacting  than  are  the  requirements  of  American 
common  law  with  respect  to  the  responsibilities  of  corporate 
directors. 

Finally,  members  of  the  board  of  supervisors  may  not 
lawfully  receive  commissions  or  any  income  proportioned 
to  the  yearly  profits.  It  is  the  intention  of  the  law  to  in- 
terest the  supervisors  in  conservatism  and  safety,  not  in 
profits.^  Profits  are  the  concern  of  the  officers.  But  the 
supervisors  may  be  paid.     Finck  says  that  "  the  coopera- 

1  W.  Wygodzinski,  op.  cit.,  p.  74. 


200  'THE  EVOLUTION  OF  PEOPLE'S  BANKS  [200 

tive  board  of  supervisors  is  chosen  by  the  general  assembly 
from  the  ranks  of  its  most-well-to-do,  most  intelligent,  most 
distinguished  and  most  generally  respected  members  "  and 
again  "  the  position  of  a  member  of  the  board  of  super- 
visors is  an  honorary  position,  an  honorary  position  in  spite 
of  the  fact  that  much  anxiety,  labor,  self-denial  and  even 
legal  responsibility  as  well  are  attached  to  it."  ^'  But  it 
does  not  seem  to  be  so  universally  true  as  this  would  imply] 
that  the  members  of  the  board  of  supervisors  are  the  richest 
members,  though  doubtless  their  average  wealth  is  higher 
than  the  average  wealth  of  other  members.  Still  less  is  it 
true  that  the  office  is  honorary  only.  While  the  salaries 
of  members  of  this  board  are  not  excessive,  some  are  sub- 
stantial and  it  is  certainly  true  that  they  are  usually  paid 
something  at  least.  Any  other  course  would  be  contrary  to 
the  general  Schulze-Delitzsch  rule,  "  Value  for  value ;  service 
for  service." 

Men  may  not  serve  as  supervisors  and  as  officers  at  the 
same  time  for  the  obvious  reason  that  there  would  then  be 
no  check  on  their  conduct.  But  the  supervisors  are  the 
people  who,  aside  from  the  officers,  know  best  the  affairs 
of  the  bank.  Thus  in  case  an  officer  is  sick  or  away,  it  is 
frequently  found  that  the  man  best  qualified  to  serve  as  his 
deputy  is  one  of  the  supervisors.  It  would  be  folly  to  throw 
away  the  services  of  the  man  best  qualified  to  serve.  Thus 
the  board  of  supervisors  is  allowed  to  appoint  one  of  its 
number  as  deputy,  but  only  for  a  short  period.  During 
this  time  the  deputy  may  not  serve  as  supervisor,  nor  may 
he  return  to  that  position  until  his  duties  as  officer  are  com- 
pleted and  his  accounts  have  been  audited. 

The  final  question  to  be  considered  is  again  how  satisfac- 

1  R.  Finck,  op.  cit.,  p.  51. 

2  C/.  also  Herrick  and  Ingalls,  Rural  Credits  (New  York,  1915),  p.  278. 


201]     THE  STRUCTURE  OF  A  PEOPLE'S  BANK  201 

tory  the  whole  arrangement  is.  Germans  feel  that  its  great- 
est weakness  lies  in  the  fact  that  the  supervisors,  because 
they  meet  with  the  officers  so  frequently,  begin  to  like  them 
and  to  trust  them.  Then  personal  friendship  prevents  them 
from  feeling  that  distrust  in  the  management  and  its  judg- 
ment which  is  supposedly  the  supervisor's  chief  virtue.  It 
is  because  the  board  of  supervisors  was  so  far  from  being 
an  automatically  successful  organization  that  the  compul- 
sory audit  was  introduced  by  statute  law.  It  is  safe  to  say 
that  if  the  boards  of  supervisors  were  perfect  there  would 
be  no  need  for  either  the  required  audit  or  for  the  educa- 
tional work  of  the  auditing  leagues.  If  the  board  of  sup- 
ervisors were  perfect,  there  would  certainly  be  no  need  of 
discussing  the  wisdom  of  creating  the  additional  "  Represen- 
tative Council  '\  But  because  it  is  not  perfect,  it  does  not 
follow  that  it  has  not  been  on  the  whole  a  useful  and  perhaps 
even  a  moderately  successful  body. 

After  the  board  of  supervisors,  the  next  institution  which 
requires  special  consideration  is  the  board  of  officers.  This 
is  the  sole  organization  which  may  execute  contracts  that 
are  legally  binding  upon  the  cooperative.  With  only  those 
exceptions  which  have  been  already  noted,  it  is  the  sole 
legal  representative  of  the  cooperative  society. 

In  case  the  officers  make  contracts  which  are  contrary 
to  the  will  of  the  general  assembly  or  of  the  board  of  super- 
visors, those  contracts  are  still  binding  upon  the  organiza- 
tion. Even  specific  prohibition  of  such  action  does  not 
invalidate  the  contract.  Furthermore,  the  fact  that  this 
board  consists  usually  of  men  who  are  present  at  the  bank 
every  day,  gives  to  this  board  in  a  very  real  sense  its  posi- 
tion as  the  representative  of  the  union. 

The  utterances  of  its  members  are  popularly  quoted  as  the 
opinion  of  the  bank.  The  board  of  officers  is  held  responsible 
for  the  proper  conduct  of  the  business  of  the  bank,  for  pre- 


202  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [202 

paring  its  reports  and  for  summoning  the  general  assembly 
(except  in  the  unusual  cases  already  mentioned).  It  is 
their  duty  to  make  available  to  members  at  least  a  week 
before  the  regular  annual  meeting  a  detailed  report  on  the 
business  of  the  preceding  year.  It  is  their  duty  to  file  with 
the  proper  authorities  the  regular  legally-required  reports 
on  membership,  changes  in  by-laws,  official  reports  and  the 
like.  It  is  their  duty  to  see  that  the  requirements  of  the 
statute  on  cooperative  societies  are  carried  out.  In  fact 
the  board  of  officers  is  held  responsible  for  the  regular  con- 
duct of  the  society  by  the  law,  by  the  cooperative  league  and 
by  the  members  themselves.  So  far  as  the  general  public 
is  concerned,  the  board  of  officers  is  the  bank. 

The  great  amount  of  power  which  the  members  of  a 
Schulze-Delitzsch  cooperative  are  thus  compelled  to  confide 
in  their  board  of  officers  makes  the  choice,  the  education 
and  the  proper  motivation  of  these  officers  matters  of  great 
importance.  In  addition  to  striving  to  secure  efficiency  in 
these  ways,  however,  there  have  been  devised  also  some 
direct  legal  methods  for  holding  these  officers  to  account. 

In  the  first  place  failure  to  use  reasonable  care  makes  the 
officer,  like  the  supervisor,  personally  liable  for  any  loss  ac- 
cruing to  the  bank.  In  the  second  place,  this  liability  is 
joint.  The  negligence  of  one  is  legally  the  fault  of  all. 
Next  it  is  customary  in  most  Schulze-Delitzsch  societies  to 
require  the  officers  to  give  bond.  This  bond  protects  the 
society  from  loss  through  the  carelessness  or  the  fraud  of 
any  member  of  the  board  of  officers,  but  it  does  not  usually 
attempt  to  protect  the  society  from  losses  due  to  the  insol- 
vency of  the  bank's  debtors.  In  the  fourth  place  the  by- 
laws of  the  society  may  impose  certain  restrictions  upon  the 
authority  of  the  officers.  For  example,  they  might  be  pro- 
hibited from  granting  loans  except  upon  the  approval  of  the 
board   of    supervisors,   or   of   a   special  credit   committee. 


203]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  203 

Such  a  restriction  would  of  course  be  invalid  against  out- 
siders. But  violation  of  these  restrictions  would  make  the 
officer  liable  to  the  society  in  damages.  Fifth,  this  liability 
also  is  joint.  'Each  member  of  the  board  is  liable  for  the 
sins  of  the  others.  Sixth,  there  is  the  power  of  the  board 
of  supervisors  to  suspend  officers  and  of  the  general  as- 
sembly to  remove  them. 

Finally,  there  is  the  rule  which  is  designed  to  protect  not 
only  the  members  of  the  bank,  but  also  the  officers  them- 
selves. In  the  absence  of  special  provisions,  all  official  docu- 
ments must  be  signed  by  all  members  of  the  board.  Co- 
operative banks  may  through  their  by-laws  make  docu- 
ments binding  which  have  been  signed  by  a  smaller  number. 
But  in  no  case  may  this  number  lawfully  be  less  than  two. 
And  in  the  absence  of  specific  provision  the  board  of  officers, 
and  consequently  the  bank,  is  responsible  only  for  those 
documents  which  are  signed  by  all  the  officers. 

The  number  of  members  of  the  board  of  officers  varies. 
It  may  not  be  less  than  two,  because  of  the  legal  requirement 
that  at  least  two  must  sign  for  the  board.  Because  of  the 
inconvenience  of  appointing  special  deputies  there  would 
usually  be  at  least  one  more,  even  if  there  were  not  the 
common  threefold  division  of  the  official  duties.  A  few 
banks  have  still  larger  boards. 

An  examination  of  the  boards  of  the  banks  belonging  to 
the  Cooperative  League  of  the  Middle  Rhine  brought  out 
the  following  facts.  Out  of  y2  Schulze-Delitzsch  societies, 
one  failed  to  report,  one  board  contained  but  two  members, 
63  boards  consisted  of  three  members,  three  societies  had 
boards  with  four  members,  three  societies  had  boards  with 
five  members  and  only  one  bank  had  a  board  with  six  mem- 
bers. Only  one  of  these  reported  a  woman  holding  a  posi- 
tion on  the  official  board.  Boards  consisting  of  two  only; 
are  perhaps  a  little  more  common  in  other  district  leagues. 


204  ^^^  EVOLUTION  OF  PEOPLE'S  BANKS  [204 

but  in  other  respects  these  figures  seem  typical.  Thus  the 
normal  board  of  officers  in  a  Schulze-Delitzsch  bank  con- 
sists of  three  men. 

These  three  men  in  the  largest  banks  are  likely  to  be  re- 
gular full-time  employees.  The  division  of  duties  which 
Schulze  worked  out  for  his  first  bank  in  Delitzsch  has  been 
little  changed  except  for  the  separation  of  the  third  chair- 
manship, that  is,  the  chairmanship  of  the  board  of  super- 
visors. At  present  one  member  usually  holds  the  office  of 
manager.  As  such  he  presides  at  meetings  of  this  board 
and  usually  at  meetings  of  the  general  assembly.  Another 
member  is  usually  the  treasurer  and  a  third  the  auditor. 
With  a  board  made  up  of  officers  who  are  on  the  spot  and 
whose  signatures  must  be  secured,  one-man  control  would 
apparently  be  impossible.  But  such  does  not  always  seem 
to  be  the  case.  And  it  is  a  common  situation  in  some  of 
the  smallest  banks  to  find  that  the  real  administration  is 
turned  over  to  one  man.  However  it  is  doubtless  true  that 
committee  control  is  in  general  more  genuine  in  the  Schulze- 
Delitzsch  bank  than  in  the  American  business  corporation. 

Members  of  the  board  of  officers  are  paid  for  their  ser- 
vices in  practically  all  cases.  This  pay  may  take  the  form 
of  a  salary,  but  it  is  more  likely  to  be  a  percentage  of  the  net 
profits.  A  fairly  common  arrangement  seems  to  be  to  pay* 
a  small  salary  plus  a  fairly  generous  percentage  of  the  net 
profits. 

Officers  are  required  by  law  to  be  members  of  the  society 
they  represent.  They  may  not  lawfully  be  elected  for  a 
period  longer  than  three  years.  The  statute  further  pre- 
scribes that  in  the  absence  of  some  specific  provision  officers 
must  be  chosen  by  the  general  assembly,  but  other  methods^ 
of  choice  may  be  prescribed  in  the  cooperative's  by-laws. 
At  the  present  time  a  very  common  method  of  selecting 
officers  is  to  have  them  actually  elected  by  the  general  as- 


205]  THE  STRUCTURE  OF  A  PEOPLE'S  BANK  205 

sembly  but  only  from  candidates  nominated  by  the  board  of 
suj>ervisors.  ! 

To  secure  efficient  officers  some  deviation  from  pure  demo- 
"Cracy  in  their  election  is  almost  inevitable,  as  successful 
banking  in  these  days  requires  specialized  talents  and  care- 
ful training.  An  unwieldy  body  like  a  general  assembly 
can  not  readily  investigate  a  candidate's  preparation.  This 
is  now  done  for  them  by  the  board  of  supervisors.  And  the 
latter  is  pretty  obviously  impressed  with  the  difficulty  of  se- 
curing competent  men  from  within  the  range  of  their  own 
acquaintance,  for,  of  late  years  at  least,  they  have  to  a  very 
considerable  extent  tried  to  secure  candidates  for  office  by 
advertising  in  certain  newspapers.  After  the  candidate  is 
secured,  it  is  easy  enough  to  have  him  go  through  the  form 
of  becoming  a  member.  The  liability  for  the  bank's  debts 
which  the  officer  thus  assumes  does  not  seem  to  have  proved 
the  obstacle  to  this  process  in  the  Schulze-Delitzsch  banks 
which  it  has  proved  to  be  in  cooperatives  of  some  other  types. 

It  is  of  course  not  always  easy  to  find  candidates  capable 
of  performing  the  manifold  duties  of  an  officer  in  a  people's 
bank.  To  meet  this  difficulty  and  create  a  supply  of  such 
men  from  whom  the  supervisors  may  choose,  several  of  the 
German  colleges  of  business  administration  have  established 
special  courses.  But  it  must  not  be  too  hastily  assumed 
from  this  fact  that  every  officer  of  a  people's  bank  has  had 
either  special  preparation  or  practical  banking  experience. 
Some  societies  still  choose  from  their  own  number  officers 
of  their  own  social  class.  Even  these  officers  seem  to  have 
done  well.  The  record  of  the  Schulze-Delitzsch  boards  in 
the  nineteenth  century  seems  on  the  whole  to  have  been 
extraordinarily  good.  Domineering  oftentimes,  the  officers 
seem  none  the  less  to  have  averaged  high  in  both  honesty 
and  efficiency. 

The  last  of  these  institutions  which  merit  special  descrip- 


2o6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [206 

tion,  has  been  denominated  "  minor  officials  and  com- 
mittees ".  There  are  three  common  cases  in  which  we  have 
extra  officials.  In  the  first  place  there  are  the  larger  people's 
banks  in  which  naturally  there  is  more  work  than  could  be 
performed  by  the  officers  alone,  no  matter  how  industrious 
these  might  be.  In  this  case  the  additional  employees  have 
such  duties  as  may  be  assigned  to  them  and  receive  whatever 
pay  has  been  agreed  upon  between  them  and  the  board  of 
officers.  Their  position  is  exactly  like  that  of  an  employee 
in  any  other  bank. 

The  second  case  arises  chiefly  in  the  smaller  societies  when 
a  technically  trained  man  is  needed  for  some  purpose  but 
where  there  is  not  enough  work  to  give  him  regular  employ- 
ment. A  similar  condition  arises  when  an  accountant  or 
some  other  trained  or  able  man  is  willing  to  work  for  the 
bank  but  is  not  willing  to  assume  the  responsibilities  of 
membership.  Such  people  may  be  employed  and  assigned 
duties,  subject  however  to  one  limitation.  Their  authority 
may  not  lawfully  extend  over  the  entire  field  of  the  bank's 
operations.  But  any  one  department  or  departments  thereof 
may  be  entrusted  to  them.  This  particular  legal  problem 
concerning  the  extent  of  the  authority  which  may  be  as- 
signed to  one  not  a  member  of  the  board  of  officers,  has  been 
far  more  important  to  a  more  recent  type  of  cooperative 
society  than  to  the  Schulze-Delitzsch  bank ;  but  it  has  arisen 
in  connection  with  the  latter  also.  On  the  whole  the  Ger- 
man courts  have  been  extremely  liberal  in  their  interpreta- 
tion of  the  extent  to  which  authority  may  be  given  such 
representatives,  provided  always  that  these  representatives 
do  not  receive  authority  to  perform  all  the  functions  of  the 
bank.  Authority  of  the  latter  kind  may  be  exercised  only 
by  the  board  of  officers. 

The  third  case  is  also  one  which  has  concerned  chiefly 
cooperatives  of  a  different  type,  but  has  occurred  in  the 


207]  ^^^  STRUCTURE  OF  A  PEOPLE'S  BANK  207 

Schulze-Delitzsch  banks  quite  frequently.  There  may  be 
various  committes  appointed  to  do  work  which  would  other- 
wise fall  to  the  officers  or  to  the  supervisors.  The  "  Credit 
Committee "  which  appears  very  commonly  in  Schulze- 
Delitzsch  banks,  is  such  an  institution.  Such  committees 
are  so  common  in  all  organizations  as  to  require  no  special 
description.  As  might  be  expected  they  may  consist  of 
both  salaried  and  unpaid  members. 

Excluding  from  consideration  for  a  moment  the  unpaid 
members  we  find  that  there  are  three  kinds  of  salaried  of- 
ficials (i)  salaried  officials,  paid  members  of  the  board  of 
officers,  (2)  other  officers  and  (3)  employees.  To  these 
should  be  added  the  officers  and  employees  of  the  various 
leagues.  Thus  we  find  that  by  the  end  of  the  century  there 
was  already  a  very  considerable  number  of  "  professional 
cooperators  ".  The  Universal  Federation  of  the  Schulze- 
Delitzsch  banks  founded  a  pension  insurance  society  for 
these  officials.  Only  a  small  portion  of  the  various  co- 
operative employees  probably  joined,  yet  the  income  of  those 
insured  amounted  in  1909  to  2,263,300  marks.  Wygod- 
zinski  estimated  this  to  mean  that  about  750  officials  with  an 
average  income  of  3,000  marks  ($750)  were  insured.^ 

To  Germans  with  their  traditions  of  the  cooperative 
society  as  a  small  neighborhood  association  in  which  each 
played  his  part,  the  steady  increase  in  the  number  of  officials 
seems  a  momentous  thing.  It  seems  to  them  as  if  the  whole 
movement  were  becoming  officialized.  They  fear  that  the 
movement  may  become  in  a  sense  the  property  of  the  pro- 
fessional cooperators.  This  fear  is  an  outgrowth  in  part 
of  the  conduct  of  these  officials.  There  can  be  no  doubt 
that  there  is  developing  a  genuine  group  consciousness  among 
them,  a  sort  of  tacit  alliance.     It  is  not  a  formal  thing  at 

1  W.  Wygodzinski,  op.  cit.,  p.  84. 


2o8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [208 

all.  It  resembles  perhaps  most  closely  the  tendency  of 
certain  prominent  American  business  men  to  hang  together 
in  denouncing  both  labor  leaders  and  politicians.  It  is  for 
the  most  part  informal;  but  the  tendency  and  the  class  con- 
sciousness which  it  implies,  is  unmistakable. 

In  a  certain  sense  this  tendency  is  inevitable.  The  Ger- 
man system  of  paying  managers  a  percentage  of  the  net 
profits  together  with  the  large  genuine  independence  of  the 
board  of  officers  brings  to  the  fore  just  those  men  and  just 
those  qualities  in  these  men,  which  would  be  brought  out 
by  doing  business  on  their  own  account.  These  men  tend  to 
be  the  kind  who  are  keen  to  make  money  and  interested  in 
getting  ahead  for  themselves,  who  are  intelligent  and  wide 
awake,  and  who  are  forceful  and  self-assertive.  With  these 
qualities  they  are  rather  naturally  the  organizers  and  rather 
naturally  disposed  to  cooperate  with  members  against  other 
banks  for  the  success  of  their  own  institution,  but  also  per- 
haps ready  to  cooperate  with  other  officials  against  their 
own  members  for  the  success  of  the  cooperative  officials. 
They  are  good  organizers  and  good  business  men. 

Any  one  who  went  to  Germany  expecting  to  find  officials 
of  the  Schulze-Delitzsch  banks  a  group  of  idealists  un- 
selfishly denying  themelves  for  the  common  good,  would 
probably  be  disuUusioned.  But  things  are  much  better  as 
they  are.  These  officers  now  have  motives  which  sustain 
an  abiding  interest  in  the  bank.  Percentages  are  not  often 
changed  and  officers  are  usually  reelected.  Thus  the  growth 
and  the  success  of  a  people's  bank  may  benefit  its  officers 
very  substantially.  Their  power  satisfies  their  instincts  for 
self-assertion  and  mastery  as  well  as  their  self-esteem.  To 
a  remarkable  extent  the  Schulze-Delitzsch  system  has  suc- 
ceeed  in  making  each  of  its  officers  feel  that  the  society  was 
his  personal  business  as  much  as  if  he  owned  it  himself. 

To  an  American  visiting  Germany  the  possessive  attitude 


209]  ^^^  STRUCTURE  OF  A  PEOPLE'S  BANK  209 

of  the  officials  would  be  noticeable,  of  course,  but  it  is  also 
true  that  members  still  feel  that  the  bank  is  their  bank  in 
a  sense  which  is  not  true  of  any  non-stockholding  borrowers 
whom  one  is  likely  to  meet  in  this  country. 

The  American's  greatest  difference  from  the  German  ob- 
server would  be  in  the  attitude  toward  the  number  of 
officials.  Even  if  the  number  of  officials  insured  were  but 
three-fourths  of  the  number  employed,  and  even  if  all  these 
officials  came  from  people's  banks,  instead  of  banks  and 
other  cooperative  societies,  this  would  give  us  only  1000 
employees  for  about  1000  banks.  Their  combined  incomes 
probably  did  not  exceed  4,000,000  marks  or  $1,000,000  a 
year.  At  the  close  of  191 2  the  1052  Schulze-Delitzsch 
people's  banks  had  682,502  members  and  assets  of  1,642,- 
400,294  marks  or  more  than  400  million  dollars.  To  us 
the  striking  thing  would  be  the  fewness  of  the  salaried  of- 
ficers. 

This  scarcity  of  officers  is  doubtless  due  in  part  to  the 
kind  of  business  which  is  done  by  the  banks.  Deposits 
subject  to  check,  with  the  heavy  demand  for  book-keeping 
which  they  entail,  form  but  a  small  proportion  of  the  total 
liabilities  of  these  banks,  though  the  use  of  checks  is  grow- 
ing. Opposed  to  this  stands  the  fact  that  clerk-hire  in  Ger- 
many is  less  than  in  this  country.  This  would  tend  to  make 
German  banks  rather  readier  to  employ  extra  officials.         j 

Probably  the  two  most  important  reasons  for  the  scarcity 
of  employees  are :  ( i )  The  members  in  a  sense  do  the  ad- 
vertising. The  expense  for  developing  the  business  and 
for  the  extra  service  needed  to  stimulate  growth  is  less 
necessary  in  a  cooperative  than  in  a  commercial  bank.  (2) 
The  members  still  do  a  considerable  amount  of  the  work  in 
running  the  bank.  American  observers  going  to  Europe 
have  gone  naturally  to  the  largest  and  most  successful  of 
these  banks.     But  it  is  precisely  in  these  that  the  process  of 


2IO  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [210 

handing  the  work  over  to  paid  officials  has  gone  farthest. 
This  has  progressed  further  in  the  Schulze-DeUtzsch  than 
in  other  cooperative  movements.  Unquestionably  the 
Schulze-DeHtzsch  cooperatives  are  closer  to  the  ordinary 
commercial  institutions  than  are  any  other  cooperative  in- 
stitutions. But  even  in  the  Schulze-Delitzsch  people's  banks, 
the  most  businesslike  of  all  the  cooperatives,  at  the  end  of 
the  century  there  were  still  some  smaller  cooperative  societies 
in  which  unsalaried  members  did  a  considerable  portion  of 
the  work.  Economy  and  the  cooperative  tradition  have 
kept  this  so  in  spite  of  the  general  Schulze-Delitzsch  principle 
of  "  Value  for  value,  service  for  service  ". 


CHAPTER  XII 

LUZZATTI  AND  HiS  FOLLOWERS 

People's  banks  have  spread  to  many  lands  and  in  almost 
every  one  of  them  it  has  been  necessary  to  make  some  slight 
modification  to  adapt  the  structure  of  the  cooperative  asso- 
ciation either  to  local  law  or  to  local  business  needs.  Most 
of  these  adaptations  have  been  of  local  importance  chiefly. 
But  one  of  these  has  been  of  such  fundamental  importance 
as  to  have  been  copied  very  largely  outside  of  the  country 
of  its  origin.  This  adaptation  now  forms  an  integral  part 
of  the  structure  of  many  modern  people's  banks.^  The 
adaptation  which  thus  stands  out  as  so  fundamentally  im- 
portant is  the  series  of  changes  which  were  instituted  in 
Italy  by  Luigi  Luzzatti. 

This  distinguished  economist  and  statesman  was  born  in 
Venice  on  March  ii,  1841.  His  parents  were  Italian  Jews 
of  considerable  wealth,  and  the  young  Luigi  was  given  a 
liberal  education.  Upon  the  completion  of  his  course  under 
the  law  faculty  of  the  University  of  Padua,  he  delivered 
there  some  lectures  on  political  economy.  But  the  views  he 
expressed  did  not  find  favor  with  the  Austrian  police  and 
in  the  years  following  Villafranca  such  disagreement  was 
dangerous.  Luzzatti  left  Venetia  to  live  under  the  more 
liberal  government  of  the  new  kingdom  of  Italy.  In  1865 
he  secured  an  appointment  in  the  Milan  Technical  Institute. 

In  1864  he  made  a  trip  to  Germany  to  study  the  work- 

1  Henry  W.  Wolff,  People's  Banks,  p.  195  et  seq. 
211]  211 


212  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [212 

ings  of  the  Schulze-Delitzsch  people's  banks.  The  des- 
cription of  them  which  he  published  on  his  return  is  one  of 
the  important  documents  in  the  history  of  cooperation.^ 
But  Luzzatti  was  not  content  to  deal  in  words  alone.  Late 
in  1864  he  started  at  Lodi,  in  connection  with  the  "  friendly 
society  "  there,  the  first  people's  bank  in  Italy,  the  Banca 
Mutua  Populare  Agricola.'  This  bank  from  the  first  has 
served  a  large  group  of  farmers.  Then  about  a  year  later 
he  undertook  the  organization  of  the  bank  whose  peculiari- 
ties and  success  wtvt  to  establish  his  reputation  in  the 
banking  world.  The  work  of  organization  took  practi- 
cally half  a  year,  but  on  May  25,  1866  the  Banca  Populare 
of  Milan  opened  its  doors  for  business.  Its  capital  at  the 
outset  was  but  $140.00,  of  which  Luzzatti  himself  sub- 
scribed $20.00.  In  this  first  bank  of  the  new  type  Luzzatti 
was  not  only  the  largest  stockholder,  but  was  also  the  whole 
clerical  staff.  Seated  at  a  table  on  the  sidewalk  in  front 
of  the  small  room  his  bank  had  rented  as  an  office,  and 
jeered  at  by  his  friends  who  could  not  understand  the  reason 
for  such  a  course,  Luzzatti  himself  did,  without  pay,  all  the 
work  of  receiving  deposits,  making  payments,  lending 
money  and  keeping  books. ^ 

Scarcely  a  month  after  this  bank  began  business  Prussia 
precipitated  the  Seven  Weeks  War  with  Austria,  whereupon 
Italy  immediately  entered  the  conflict  as  an  ally  of  Prussia. 
The  Italian  government  then  passed  a  law  which 
made  the  notes  of  the  national  bank  legal  tender.  The 
national  bank  increased  its  note-issue  rapidly,  gold  rose  to 
a  high  permium  and  metallic  money  of  all  kinds  disappeared 
from   circulation.     The   disappearance   of   the   small  coins 

^Herrick  and  Ingalls,  op.  cif.,  p.  347- 
«H.  W.  Wolff,  op.  cit.,  p.  238. 
•Herrick  and  Ingalls,  op.  cit.,  p.  347, 


213]  LUZZATTI  AND  HIS  FOLLOWERS  213 

produced  great  hardship,  for  there  were  no  bank  notes 
sufficiently  small.  At  this  juncture  Luzzatti's  bank  offered 
to  provide  the  community  with  small  change  by  issuing 
bills  of  five,  three  and  two-lire  denomination,  in  loans  on 
the  pledge  of  security.  The  municipal  council  approved  the 
suggestion.  Public  opinion  was  distinctly  favorable  and  the 
printing  presses  were  set  to  work.  The  public  was  served 
and  the  bank  obtained  not  only  prestige,  but  also  a  large 
supply  of  loanable  funds.  No  wonder  membership  rose 
quickly  to  1153  and  its  capital  to  more  than  $44,000.00.^ 
The  bank's  earnings  were  sufficient  to  pay  a  dividend  of 
10%  and  to  accumulate  a  considerable  surplus  as  well. 

The  conclusion  of  the  war  ended  the  Austrian  control  of 
Venetia.  Thus  in  1867  Luzzatti  received  from  his  old 
university  at  Padua  an  appointment  as  Professor  of  Con- 
stitutional Law.  But  in  spite  of  this  early  departure  from 
the  bank  he  had  started,  he  could  fairly  count  his  work 
there  as  done.  Though  only  about  a  year  old,  his  bank 
was  already  well  able  to  stand  on  its  own  feet.  Luzzatti 
himself,  sometime  later,  left  Padua  for  Rome. 

Luzzatti's  political  career  began  in  1869  with  his  ap- 
pointment by  Minghetti  as  under-secretary  of  state  for 
agriculture  and  commerce,  in  which  capacity  he  assisted  in 
abolishing  some  of  the  more  burdensome  restrictions  upon 
commercial  corporations.  Even  after  leaving  office  he  was 
twice  able  to  serve  his  country  in  connection  with  commer- 
cial negotiations  and  the  tariff.  Then  in  1891  he  was  ap- 
pointed Minister  of  Finance  in  the  Di  Rudini  cabinet. 

As  Minister  of  Finance  Luzzatti  abolished  the  former 
compulsory  system  of  frequent  clearings  of  bank-notes. 
This  action  without  much  doubt  aggravated  the  panic  of 
1893.     Then,  when  that  panic  came,  political  sentiment  in 

^H.  W.  Wolff,  op.  cit.,  p.  232  et  seq. 


^14  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [214 

Italy  followed  much  the  same  course  as  in  the  United 
States.  The  party  in  power  was  blamed  for  the  local 
manifestation  of  a  world-wide  phenomenon.  Luzzatti's 
ministry  was  defeated  and  a  new  minister  of  finance  took 
office  in  December,  1893.  But  in  1896  Luzzatti  again  be- 
came Minister  of  Finance  in  the  second  Di  Rudini  cabinet, 
which,  however,  was  again  driven  out  of  office  in  June 
1898.  In  1903  Luzzatti  for  the  third  time  became  Italy's 
Minister  of  Finance  as  a  member  of  Giolitti's  second  cabinet 
and  remained  in  office  until  1905.  And  finally  he  served  in 
that  office  once  more,  from  February  until  May,  1906, 
under  the  leadership  of  Sonnino.  During  this  last  brief 
term  in  office  he  successfully  achieved  the  conversion  of 
the  Italian  5%  debt  into  3%%  and  later  3^^%.  This 
achievement  was  completed  by  his  successors,  but  to  Luz- 
zatti is  due  the  credit.  This  refunding  of  the  debt  forms 
probably  his  greatest  official  achievement.  But  his  greatest 
public  achievement  beyond  doubt  has  been  his  successful 
amendment  and  propagation  in  Italy  of  the  people's  banks. 

Italy  was  the  birthplace  of  modern  banking,  and  in  the 
Italian  cities  of  i860  there  were  great  banks  and  ample 
loan  funds;  but  not  all  of  the  population  had  access  to 
these.  Among  laborers  and  small  farmers  usury  was  rife. 
One  instance  is  quoted  where  a  group  of  usurers  agreed  to 
lend  money  in  only  one  way,  namely  to  sell  to  the  borrower 
$10.00  worth  of  com  for  $20.00  payable  in  three  months. 
But  even  this  rate  of  100%  interest  for  every  three  months 
was  exceeded  on  small  loans  where  the  cost  to  the  borrower 
occasionally  exceeded  100%  a  month.^ 

It  was  to  prevent  such  conditions  as  these  that  Luzzatti 
undertook  his  self-appointed  task  of  spreading  cooperation 
in  Italy.     But  in  attempting  to  transplant  the  German  pro- 

1  Sir  Frederick  A,  Nicholson  cited  by  Herrick,  op.  cit.,  pp.  346-7- 


215]  LUZZATTI  AND  HIS  FOLLOWERS  215 

duct,  he  found  it  necessary  to  make  certain  modifications  in 
its  design. 

In  the  first  place  Italy  differed  strikingly  from  Germany 
in  the  abundance  of  its  banking  facilities.  Then  the  very 
availability  of  loan  funds  changed  completely  the  problem 
of  organization.  Schulze  for  his  first  bank  had  determined 
upon  the  size  of  his  share  by  dividing  the  members'  credit- 
needs  by  the  number  of  members.  The  people's  bank  was 
to  supply  its  own  funds !  But  Luzzatti  tried  only  to  secure 
a  guaranty  fund  and  a  form  of  organization  which  lenders 
would  trust. 

But  at  this  point  a  second  difference  appeared.  The 
small  business  men  of  Italy  were  afraid  of  unlimited 
liability.  Therefore  Luzzatti  was  compelled  to  organize  his 
bank  as  a  joint  stock  corporation. 

This  corporate  form  was  open  to  several  objections. 
For  example,  when  new  members  were  taken  in,  it  was 
necessary  to  issue  shares  to  them  without  legal  authority; 
then  at  the  end  of  the  year  to  increase  the  capital  stock  and 
to  legalize  the  issue  of  these  shares.  How  members  might 
withdraw  was  a  problem. 

But  a  much  more  immediate  problem  lay  in  securing 
enough  capital  for  the  new  corporation  to  make  it  an  ac- 
ceptable borrower.  Thus  Luzzatti  decided  to  make  the 
stockholders  pay  in  their  entire  subscription  as  promptly  as 
possible.  Members  of  Schulze-Delitzsch  banks  may  pay 
a  little  as  twelve  cents  a  week  and  spread  their  payments 
over  several  years.^  Luzzatti  decided  to  make  the  instal- 
ments such  that  all  shares  must  be  paid  up  within  ten 
months  at  longest.^ 

Prompt  payment  of  shares  precluded  the  possibility  of 
large  shares.     Thus  it  was  lucky  that  large  share  capital  was 

*Herrick  and  Ingalls,  op.  cit.,  p.  275. 
2  H.  W.  Wolff,  op.  cit.,  p.  200. 


2i6  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [216 

not  needed.  But  to  give  the  bank  even  a  reasonable  guaranty- 
fund,  it  seemed  desirable  to  encourage  members  to  purchase 
more  than  one  share  whenever  possible  and  to  get  in  as 
many  members  as  possible.  Thus  Luzzatti  was  driven  to 
establishing  banks  whose  membership  was  larger  even  than 
the  already  large  German  prototype. 

A  comparison  between  962  German  banks  and  594  Italian 
people's  banks,  made  by  Mr.  Luzzatti  himself,  brought  out 
the  following  interesting  contrast :  ^ 

German  Italian 

Average  share  capital  per  bank  [In  lire]. .     177,021  125,662 

Average  share  capital  per  member  [In  lire]           315  196 

Average  membership  per  bank 561  642 

Now  the  management  of  a  bank  with  a  large  number  of 
borrowing  members  is  a  far  more  difficult  and  complicated 
task  than  the  control  of  a  smaller  institution.  Thus  the 
structure  of  the  Luzzatti  bank  would  probably  of  necessity 
have  been  more  complex.  But  added  to  this  was  the  fact 
that  Luzzatti  was  interested  in  democratic  control.  He  also 
desired  to  distribute  the  bank's  credit  as  far  as  possible, 
that  is,  to  give  preference  to  small  loans.  But  the  small 
borrower  pays  no  more  than  the  big  one.  Ten  loans  of 
100  lire  each  earn  no  more  than  one  loan  of  a  thousand 
lire.  And  the  investigation  of  ten  borrowers  costs  more 
than  the  investigation  of  one.  Such  a  course  of  democratic 
lending  is  not  likely,  then,  to  be  the  most  profitable  possible. 
In  the  face  of  these  difficulties,  Luzzatti  not  only  abandoned 
the  German  method  of  paying  the  officers  a  percentage  of 
the  profit,  but  he  decided  to  make  the  work  of  management 
entirely  unpaid.  To  do  this  complex  task  with  officers  en- 
tirely unpaid,  Luzzatti  devised  an  administrative  organiza- 
tion that  was  necessarily  complicated. 

»H.  W.  Wolff,  op.  cit.,  p.  229. 


217]  LUZZATTI  AND  HIS  FOLLOWERS  217 

The  highest  authority  within  the  bank  is  of  course  the 
general  law  of  the  land.  In  1866  this  was  chiefly  re- 
presented by  the  statute  on  corporations  and  was  the  bank's 
chief  stumbling  block.  The  second  rank,  as  might  be  ex- 
pected, was  held  by  the  bank's  own  constitution  and  by-laws. 
The  third  place,  naturally  also,  was  occupied  by  the  general 
meeting  of  all  members.  This  normally  occurs  but  once  a 
year,  but  special  meetings  may  be  called  by  the  officers  and 
must  now  be  called  on  the  request  of  one-tenth  of  the 
membership.  One-fifth  of  the  membership  constitutes  a 
quorum.^  Voting  by  proxy  is  not  ordinarily  permitted. 
Each  member,  regardless  of  his  stock-holdings,  has  but  one 
vote.^ 

The  fourth  institution,  however,  is  unique.  It  consists 
of  a  board  of  three  prohiviri.  This  board  has  no  power  of 
initiative  at  all.  It  is  a  court  of  review  only,  and  may  act 
only  in  cases  of  complaints.  Their  status  is  due  to  the  fact 
that  the  law  in  many  European  countries  permits  associa- 
tions to  provide  private  boards  of  arbitration  whose  decis- 
ions, subject  only  to  a  few  general  restrictions,  will  be  re- 
cognized and  enforced  by  the  ordinary  courts  of  law.  The 
people's  banks  were  much  in  need  of  such  a  board  of  arbi- 
tration, both  because  the  corporate  form  was  distinctly  a 
misfit  and  because  it  was  the  bank's  announced  policy  to 
extend  credit  to  all  members  and  furthermore  to  give  the 
preference  to  small  loans  if  the  security  were  good.  Thus 
the  refusal  of  a  loan  might  be  regarded  as  a  denial  of  the 
borrower's  membership  rights  or  as  a  reflection  upon  his 
solvency  and  the  solvency  of  his  endorsers.  Such  a  board 
of  arbitration  is  therefore  provided  by  the  election  of  these 
three  judges,  or  prohiviri.     Each  serves  for  a  term  of  three 

*Herrick  and  Ingalls,  op.  cit.,  p.  351. 
'  H.  W.  Wolff,  op.  cit.,  p.  235. 


2i8  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [218 

years.  They  act  only  as  a  board,  but  their  decision  when 
thus  given  is  binding  unless  set  aside  by  law  or  by  the 
general  meeting  of  all  members. 

The  fifth  body  is  the  first  one  actively  to  exercise 
authority.  In  this  body,  the  Consiglio,  or  board  of  dir- 
ectors, is  vested  the  final  decision  as  to  all  matters  in  the 
ordinary  conduct  of  the  bank's  affairs.  This  board  in  the 
smaller  banks  may  contain  as  few  as  seven  members;  in 
the  larger  banks  it  may  contain  more  than  130.  The  mem- 
bers of  this  board  serve  without  pay.  Their  term  of  office 
is  normally  three  years  and  one-third  are  elected  each  year. 
These  elections  occur  at  the  annual  meeting  of  all  mem- 
bers. 

In  so  large  a  deliberative  body  the  chairman  inevitably 
acquires  considerable  influence.  Thus  it  has  come  about  that 
the  chairmanship  of  the  board  of  directors  is  the  most  im- 
portant single  position  within  the  bank/  This  position 
may  therefore  be  listed  as  the  sixth  administrative  organ. 

The  seventh  body  which  exercises  authority  consists  of 
the  board  of  officers  or  Sindaci,  to  whom  is  entrusted  the 
actual  conduct  of  the  bank's  affairs.  Here  at  last  we 
meet  an  active  executive  official.  Only  the  signature  of 
one  of  these  Sindaci  can  bind  the  bank  and  it  is  therefore 
expected  that  one  of  them  will  always  be  present  during 
business  hours  to  represent  the  supreme  authority.  Thus 
in  some  resj>ects  the  Sindaci  are  like  the  German  board  of 
officers.  But  there  are  important  differences.  The  Sindaci 
are  unpaid.  It  is,  then,  not  expected  that  all  of  them  will 
be  present  all  the  time,  but  merely  that  they  will  divide  up 
the  time  among  themselves  so  that  one  of  them  will  be  al- 
ways present  during  business  hours.  Therefore  the  signa- 
ture of  any  one  of  these  officers  is  binding  upon  the  bank. 

1  Cf.  Herrick  and  Ingalls,  op.  cit.,  p.  351. 


219]  LUZZATTI  AND  HIS  FOLLOWERS  219 

Only  in  presenting  the  annual  report  do  they  act  as  a  unit. 
Thus  only  in  this  one  respect  do  they  act  as  the  Grerman 
board  of  ofificers  is  compelled  always  to  act.  Unity  be- 
tween the  fiWG:  different  policies  which  would  normally  re- 
sult from  this  situation  is  secured  by  making  the  Sindaci  not 
an  administrative  body,  but  merely  a  body  of  executives  ap- 
pointed to  carry  out  the  will  of  the  Consiglio.  They  are 
then  not  elected  by  the  annual  meeting,  but  by  the  Consiglio, 
and  have  only  a  limited  field  of  discretion.  They  have,  for 
example,  no  authority  to  grant  loans. 

This  vital  function  of  granting  loans  is  in  the  hands  of  a 
separate  body,  the  Comitato  di  sconto,  or  discount  committee. 
This  also  is  a  large  body  consisting  of  at  least  five,  and 
xisually  of  fifteen  to  forty,  members.  The  peculiarity  of  its 
position — indeed  one  of  the  most  striking  peculiarities  of 
the  whole  structure  of  the  Banche  Populari — lies  in  the  fact 
that  this  body  is  not  only  independent  of  the  Sindaci,  but 
also  of  the  Consiglio.  Its  members  are  elected  at  the  annual 
meeting  of  the  bank's  members  ^  and  hold  office  for  two 
years.  The  members  of  this  committee  also  are  unpaid. 
It  is  their  duty  to  draw  up  and  maintain  a  secret  register, 
called  the  castelletto,  which  assigns,  even  in  advance  of  the 
member's  application,  a  limit  to  the  line  of  credit  which 
each  may  receive.  This  committee  meets  each  week  and 
each  meeting  is  attended  also  by  two  members  of  the  Con- 
siglio designated  for  that  purpose  by  the  chairman  of  that 
body. 

The  ninth  administrative  body  within  the  Luzzatti  bank 
is  the  Comitato  dei  reschi,  or  committee  on  risks.  The  duty 
of  this  body  is  to  keep  track  of  all  loans  and  investments, 
to  keep  a  record  of  all  borrowers  and  of  all  endorsers  and 
to  make  a  note  of  any  fact  which  might  injure  their  capacity 

1  H.  W.  Wolff,  op.  cit.,  p.  206. 


220  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [220 

to  pay.  Its  purpose  is  to  guard  against  any  laxity  on  the 
part  of  the  Comitato  di  sconto,  such  as  might  involve  the 
bank  in  losses.     In  some  banks  this  body  is  omitted. 

The  tenth  administrative  body  is  the  committee  on  honor 
loans.^  This  body  also  does  not  exist  in  every  bank.  When 
present,  its  membership  is  usually  five  and  its  duty  is  to 
supplement  the  work  of  the  discount  committee  by  lending 
that  portion  of  the  bank's  funds  which  the  members  may 
decide  to  devote  to  unsecured  loans  among  the  worthy  poor. 
These  loans  are  not  intended  as  charity,  though  in  some 
cases  they  are  made  without  interest.  These  loans  are 
always  made  repayable  by  instalments,  the  last  instalment 
being  due  in  not  more  than  forty  to  sixty  weeks.  Losses 
from  loans  of  this  kind  have  been  larger  than  from  the  re- 
gular business,  but  have  not  been  as  large  as  might  be 
expected.  In  1890  the  Banca  Popular e  di  Credit 0  of  Padua 
reported  losses  of  2000  lire  out  of  loans  amounting  to 
100,000  lire.  The  Banca  Popidare  of  Bologna  reported 
losses  of  313  lire  out  of  9250  lire  lent  out  up  to  1889. 
Other  experience  would  imply  that  the  average  rate  of  loss 
was  approximately  two  or  three  per  cent.  Naturally  this 
is  a  type  of  business  which  no  bank  is  eager  to  secure. 
Consumption  loans  probably  are  never  good  business,  even 
though  in  certain  cases  they  may  achieve  highly  desirable 
moral  and  social  results.  Furthermore,  as  the  people's 
banks  have  grown  in  wealth  this  work  has  become  more 
difHcult  for  them.  Luckily,  however,  the  idea  has  been 
taken  up  by  trade  unions  and  friendly  societies.  Where 
still  retained  by  the  people's  banks,  it  has  been  done  largely 
"  to  please  Mr.  Luzzatti."  At  no  time  is  the  volume  of  this 
business  large — at  least  among  the  people's  banks. 

The  eleventh  and  last  administrative  body  consists  of  the 

1  H.  W.  Wolff,  op.  cit.,  p.  215  et  seq. 


22 1 ]  LUZZATTI  AND  HIS  FOLLOWERS  221 

employees.  Not  all  the  banks  have  such  an  employed  per- 
sonnel, but  the  larger  ones  necessarily  employ  a  very  con- 
siderable staff.  The  People's  Bank  at  Milan,  for  example, 
now  has  more  than  one  hundred  clerks  on  its  payroll.'' 
This  staff  in  most  of  the  people's  banks  is  headed  by  a 
manager  and  a  cashier.  They  are  responsible  to  the  Con- 
siglio.  The  higher  officials  are  paid  by  salary  and  by  a 
percentage  of  the  profits,  as  is  common  in  German  banks.^ 
Furthermore,  it  is  now  customary  to  require  these  officials 
to  become  members  of  the  bank  upon  receiving  their  appoint- 
ment. In  so  far  as  this  custom  is  carried  out,  it  repre- 
sents a  distinct  departure  from  the  original  Luzzatti  prin- 
ciple of  non-payment  to  any  members.  In  fact,  the  growth 
of  these  Italian  banks  in  wealth  has  made  those  of  them 
that  have  become  wealthy  approximate  more  closely  the 
Schulze-Delitzsch  structure — ^with  one  great  and  important 
exception.  The  small  German  board  of  supervision  is 
substantially  a  failure.  The  large  Italian  Consiglio  is  a 
success. 

Lending  is  done  as  in  Germany  by  the  "  cash  credit."  As 
in  Germany  this  method  of  borrowing  is  often  called 
"  character  credit "  and  the  normal  security  is  the  guaranty 
of  the  account  by  two  or  more  neighbors. 

A  few  of  the  Italian  banks  make  loans  on  the  security  of  a 
member's  stock  in  the  bank.  Some  banks  will  even  lend 
twice  the  paid-up  value  of  a  share.  In  spite  of  the  very 
obvious  objections,  this  practice  has  not  as  yet  led  to  un- 
fortunate results.* 

The  use  of  acceptances  is  far  more  common  in  Italy  than 
in  Germany.     There  are  several  reasons  for  this.     In  the 

»H,  W.  Wolff,  o/'.  aV.,  p.  7. 

*Ihid.,  p.  203. 

^Ibid.,  p.  211.  / 


222  THE  EVOLUTION  OF  PEOPLES  BANKS  [222 

first  place,  the  Italian  law  with  respect  to  acceptances  is  not 
so  severe.  In  the  second  place,  postmen  are  authorized  by 
law  to  collect  acceptances  on  their  regular  rounds.  Thus 
handling  such  paper  is  extraordinarily  cheap.  And,  finally, 
the  population  has  become  accustomed  to  the  use  of  this 
instrument.  To  such  an  extent  is  this  true  that  many 
"  cash  credits  "  are  secured  by  the  acceptance  of  the  bor- 
rower/ 

It  seems  to  have  been  Luzzatti's  plan  originally  to  raise 
money,  in  part  at  least,  from  the  joint  stock  banks.  But 
this  has  never  been  in  practice  an  important  source  of  funds. 
In  1866  for  a  short  time  the  issue  of  bank-notes  provided 
considerable  capital.  The  issue  of  debentures  was  another 
expedient  which  has  been  tried  but  which  has  met  no  real  suc- 
cess. The  great  bulk  of  the  bank's  resources  come  now 
from  deposits,  among  which  savings  deposits  have  been  of 
especial  importance.  To  attract  these,  most  banks  pay  in- 
terest ranging  from  three  to  four  percent. 

The  interest  rate  charged  to  borrowers  has  varied.  On 
some  of  these  loans  7J4  percent  has  been  charged;  on  some 
the  rate  has  been  as  low  as  four  percent.  After  paying  the 
expenses,  a  quarter  to  a  third  of  the  net  profits  has  usually 
been  set  aside  for  reserves.  The  balance  was  at  first  distri- 
buted in  dividends.  Thus  the  average  dividend  on  shares 
in  1908  was  8.34  per  cent.^  But  lately  some  of  the  banks 
have  adopted  the  Liege  plan  of  distributing  some  of  this 
profit  as  a  return  to  borrowers  on  the  interest  paid.  Such 
a  dividend  to  member-customers  is  called  ristovirne^ 
This  recent  development  is  perhaps  the  most  striking  devia- 
tion observable  in  Italy  from  the  original  Luzzatti  plan. 

»H.  W.  Wolff,  ^/>.  a^,  p.  213. 
'Herrick  and  Ingalls,  op.  cit.,  p.  353. 
•H.  W.  Wolff,  op.  cit.,  p.  250. 


223]  LUZZATTl  AND  HIS  FOLLOWERS  223 

Ai  small  amount  has  been  lent  to  farmers  for  periods 
rather  longer  than  the  usual  commercial  loan.  Where  this 
has  been  done,  it  has  been  customary  to  require  borrowers  to 
state  the  purpose  of  their  loan.  But  the  experiments  in 
long-term  loans  to  farmers  have  been  no  more  satisfactory 
than  the  sporadic  efforts  to  lend  money  to  tide  over  the 
immediate  difficulties  of  the  deserving  poor.  The  difficul- 
ties in  lending  money  to  farmers  are  of  an  entirely  different 
kind,  but  they  seem  to  have  been  almost  equally  prohibitive. 
In  fact,  the  general  structure  of  the  people^s  bank  seems 
poorly  adapted  to  work  of  both  these  kinds.  It  is  really 
well  adapted  to  but  one  purpose,  and  that  is  making  small 
short-term  loans  to  those  business  men  whose  accounts  are 
so  small  that  the  ordinary  joint  stock  bank  will  make  no 
great  effort  to  accommodate  them.  But  within  this  limited 
field  they  have  been  an  extraordinary  success. 

The  brilliant  success  of  Luzzatti's  bank  at  Milan,  to- 
gether with  the  generous  interest  of  the  friendly  societies 
which  were  already  well  developed  throughout  Italy, 
awakened  a  good  deal  of  enthusiasm  for  the  new  coopera- 
tive movement  during  the  years  following  the  Seven 
Weeks'  War.  Other  banks  of  the  same  type  began  to  be 
formed.  The  number  increased  slowly  but  steadily.  By 
1882  there  were  206  such  banks  with  an  aggregate  member- 
ship of  114,072  and  a  total  capitalization  of  about 
$10,000,000. 

Then  starting  with  1883  there  came  a  '*  flowering  sea- 
son." By  1889  the  number  of  people's  banks  was  714, 
with  more  than  $20,000,000  capital.  By  1893  there  were 
730  such  banks.  Of  these,  662  voluntarily  sent  in  reports 
and  these  reports  showed  a  combined  membership  for  these 
reporting  banks  of  405,341.^ 

>H.  W.  Wolff,  op.  cit.,  p.  227. 


224  ^^^  EVOLUTION  OF  PEOPLE'S  BANKS  [224 

The  reason  for  this  sudden  growth  of  more  than  three- 
fold is  to  be  found  in  a  change  in  Italy's  statute  law.  Dur- 
ing all  these  early  years  the  banks  had  been  handicapped 
by  the  fact  that  they  had  been  compelled  to  adopt  the  legal 
form  of  a  joint  stock  corporation.  And  some  of  their 
activities  then,  though  not  prohibited  by  law,  were  without 
legal  sanction.  This  situation  was  remedied  when  the  new 
commercial  code,  which  went  into  effect  January  i,  1883, 
provided  for  the  cooperative  association  as  a  legally  re- 
cognized form  of  business  organization.  The  provisions 
of  this  code  have  been  summarized  by  Herrick  and  Ingalls 
as  follows :  ^ 

According  to  this  code,  as  amended  from  time  to  time,  co- 
operative associations  may  be  organized  with  or  without  share 
capital,  and  may  be  based  on  either  limited  or  unlimited  liabil- 
ity, or  liability  limited  as  to  some  members  and  unlimited  as  to 
others.  They  may  be  created  by  filing  a  sworn  organization 
certificate,  which  must  show  the  conditions  for  the  admission, 
withdrawal  and  retirement  of  members,  and  the  manner  and 
times  of  payments  on  shares  subscribed  for.  It  must  show 
also  the  method  of  calling  meetings  of  the  members  and 
designate  the  newspaper  to  be  used  for  publication  of  notices, 
etc.  If  a  society  has  unlimited  liability,  the  officers  must  file 
at  the  tribunal  of  commerce  every  three  months  a  list  of  its 
members,  showing  all  who  were  admitted  and  retired  during 
that  period.  Shares  having  a  value  of  over  $20  cannot  be 
issued.  No  one  may  hold  more  than  $1,000  of  shares,  or 
belong  to  two  or  more  credit  societies  at  the  same  time.  Mem- 
bers are  responsible,  according  to  the  form  of  liability  as- 
sumed, for  all  obligations  contracted  by  a  society  up  to  the  day 
of  their  retirement,  and  this  liability  lasts  two  years. 

The  most  striking  feature  of  this  code  is  the  omission  of 

*  Herrick  and  Ingalls,  op.  cit.,  p.  349. 


225]  LUZZATTI  AND  HIS  FOLLOWERS  225 

the  compulsory  audit.  Inspection  of  banks  was  not  re- 
quired in  Germany  in  1883,  but  the  continued  absence  of 
such  inspection  in  Italy  is  noteworthy. 

Of  late  years  the  movement  has  grown  more  slowly, 
probably  because  the  people's  banks  now  in  existence  already 
do  a  full  third  of  the  country's  business.^  Between  the 
joint  stock  banks  on  the  one  hand  and  the  rural  cooperative 
borrowers'  associations  on  the  other,  the  field  is  now  pretty 
well  covered.  In  1908  there  were  in  Italy  735  people's 
banks.  These  had  a  combined  membership  of  501,022. 
Their  capital  and  reserves  amounted  to  $31,132,800  and 
their  deposits  to  $200,000,000.00.* 

The  next  step  after  getting  the  banks  well  started  was 
naturally  to  organize  a  federation  with  its  subordinate 
leagues  and  its  publicity  and  audit.  But  that  step  has  not 
yet  been  taken.  Efforts  in  that  direction  have  thus  far 
resulted  only  in  the  formation  of  nine  provincial  leagues, 
which  do  little  or  nothing  except  to  exist.  These  leagues 
consist  of  those  banks  respectively  which  carry  accounts 
with  nine  of  the  larger  banks  of  the  system.  Associations 
with  liability  limited  to  the  value  of  the  shares  have  no 
such  desire  for  audit  as  do  the  German  banks,  where  even 
in  the  cooperative  society  with  "  limited  liability  "  members 
are  liable  for  at  least  twice  the  value  of  their  shares.  The 
lack  of  the  compulsory  legal  audit  has  also  removed  one  of 
the  inducements  for  membership  in  a  league.  In  the  absence 
of  both  legal  audit  and  auditing  leagues  there  is  a  greater 
variety  among  Italian  than  among  German  banks,  not  only 
in  by-laws  and  business  methods  but  also  in  safety  and 
probable  solvency.  Not  all  of  the  Italian  people's  banks 
live  up  to  the  high  standards  set  for  them  by  Luzzatti  and 
the  better  banks. 

*H.  W.  Wolff,  op.  cit.,  p.  230. 
'Herrick  and  Ingalls,  op.  cit.,  p.  348, 


226  THE  EVOLUTION  OF  PEOPLES  BANKS  [226 

There  is,  it  is  true,  an  Italian  "  Federation"  but  its 
activities  are  limited  to  struggling  to  keep  alive  a  journal 
devoted  to  cooperation.  In  Italy  there  has  never  been  the 
hostility  from  without  to  hammer  the  people's  banks  into 
a  compact  fighting  federation.  The  Italian  Federation  has, 
however,  organized  occasional  congresses  on  cooperation. 
The  Sixth  Cooperative  Congress  was  held  at  Bologna  in 
1895.  The  Seventh  Cooperative  Congress  was  held  at 
Cremona  in  1907.  This  one  very  appropriately  elected  to 
its  presidency  M.  Luigi  Luzzatti,  four  times  Minister  of 
Finance  to  Italy  and  founder  of  the  Italian  cooperative 
banking  movement. 


CHAPTER  XIII 
The  People's  Banks  in  Many  Lands  j 

There  remains  now  the  problem  of  measuring  the  extent 
to  which  the  idea  of  the  people's  bank  has  spread  around  the 
world. 

Of  the  European  countries,  France  has  had  probably  the 
most  checkered  experience  with  urban  cooperative  credit. 
During  the  last  seventy-five  years  there  have  been  within 
her  boundaries  at  least  three  different  movements,  whose 
purpose  was  to  extend  urban  cooperative  credit. 

The  first  of  these  was  purely  French.  In  1848  Proudhon 
launched  his  "  People's  Bank  ",  whose  purpose  was  to  re- 
generate mankind  and  whose  achievement  was  to  become 
bankrupt  within  a  few  months.^  Buchez  popularized  the 
idea  of  credit  to  labor.  Therefore,  probably  we  should 
count  as  an  outgrowth  of  this  earlier  movement  the  much 
advertised  Credit  au  Travail,  or  Bank  for  Labor,  though 
this  institution  was  not  started  until  1863.  Its  manager 
was  Beluze.  Among  its  supporters  were  to  be  found  men 
of  the  most  diverse  opinions ;  Royalists  like  Casimir-Perier, 
Catholic  Conservatives  like  Cochin,  Socialists  like  Louis 
Blanc,  and  even  the  Nihilist,  Bakunin.  But  within  five 
years  this  institution  also  had  failed  and  its  creditors  re- 
ceived but  eighteen  cents  on  the  dollar.^  However,  this 
first  period  was  marked  by  some  successes  as  well  as  by  these 
two  failures.     Among  these  less  advertised  but  genuinely 

1  H.  W.  Wolff,  People's  Banks,  p.  253^ 

•Theodore  Menikoff,  Le  Credit  Cooperatif  (Paris,  1911),  p.  183  et  seq. 
227]  227 


228  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [228 

successful  banks  are  to  be  counted,  (a)  The  Provident  Aid 
Bank  founded  at  Limoges  in  1830;  (b)  The  Fraternal 
Bank  for  Small  Commerce,  founded  at  Cognac  in  1848; 
and  (c)  The  Bounard  Exchange  Bank  of  Marseilles, 
founded  in  1849/ 

The  second  period  started  with  the  introduction  of  the 
Schulze-Delitzsch  bank  from  Germany  only  five  years  after 
the  first  bank  had  been  started  there.  In  1857  nine  grape 
growers  and  artisans  living  in  Montreuil  and  Vincennes  or- 
ganized the  Banque  de  Solidarite  Commerciale.  Their  meet- 
ings were  held  in  secret  and  the  greatest  pains  were  taken 
to  prevent  surprise  by  government  spies  or  police.  Such 
association  was  criminal  under  the  second  empire  and  a 
peaceful  workingman  had  been  arrested  simply  because  he 
was  the  manager  of  a  working-man's  society.  How  much 
business  could  be  done  under  these  circumstances  is  not  ex- 
plained. But  the  repression  and  secrecy  had  their  natural 
effect.  Within  several  years,  there  were  reported  to  be  fully 
200  of  these  people's  banks."  But  apparently  the  more 
liberal  atmosphere  of  the  republic  destroyed  their  cohesive- 
ness,  while  the  unpopularity  after  1870  of  all  things  made 
in  Germany,  caused  a  loss  of  interest,  for  none  of  these 
early  Schulze-Delitzsch  banks  has  survived. 

The  third  movement  came  from  Italy  "'  and  it  is  these 
Luzzatti  banks  which  now  form  the  bulk  of  the  French 
urban  cooperative  credit  movement.  But  on  January  i, 
1 910  *  the  entire  movement  consisted  of  but  thirteen  banks. 
That  there  are  not  more  is  probably  due  in  part  to  the  fact 
that  France  is  primarily  agricultural  rather  than  industrial, 

*Herrick  and  Ingalls,  Rural  Credits,  p.  322. 

'Theodore  Menikoff,  Le  Credit  Cooperatif  (Paris,  1911),  p.  181. 

'H.  W.  Wolff,  op.  cit.,  pp.  252  and  257. 

♦T.  Menikoff,  op.  cit.,  p.  185. 


229]  -^^^  PEOPLE'S  BANKS  IN  MANY  LANDS  229 

and  in  part  to  the  extraordinary  smallness  of  many  of  the 
loans  made  by  the  various  local  branches  of  the  great 
French  commercial  banks. 

The  second  country  to  be  considered  is  Belgium.  It  will 
be  recalled  that  within  its  boundaries  was  started  in  1848 
the  first  genuinely  successful  cooperative  bank  of  any  type. 
This  institution,  the  Credit  Union  of  Brussels,  is  still  in 
existence  and  is  extraordinarily  successful.  In  1910  it  con- 
tained 5,232  members  and  had  a  capital  of  $14,207,600.00. 
There  are  now  five  other  credit-unions  of  this  same  type 
though  no  others  are  so  large.  All  of  these  credit  unions 
have  confined  their  attention  and  their  loans  chiefly  to  the 
wealthier  merchants.  Thus  there  was  room  for  Schulze- 
Delitzsch  banks  also.  The  first  of  these  was  introduced  by 
Leon  d'Andrimont  at  Liege.  Others  were  formed  at  Ver- 
viers,  Huys,  Gand,  Namur  and  elsewhere.  In  191 3  there 
were  45  of  these  Schulze-Delitzsch  banks  belonging  to  a. 
federation  of  which  M.  d'Andrimont  was  president.^ 

In  Germany  at  the  close  of  191 4  there  were  within  the 
Universal  Federation  alone  976  people's  banks.  Of  these, 
945  voluntarily  reported.  These  945  reporting  banks  con- 
tained 618,408  members.  They  had  surplus  and  share- 
capital  amounting  to  more  than  $87,000,000.00  and  total 
assets  in  excess  of  $410,000,000.00.  Two  independent 
Iccfgues  of  somewhat  similar  character,  those  of  Ulm  and 
of  the  provinces  of  Posen  and  West  Prussia,  brought  the 
total  number  of  banks  of  this  type  up  to  1287.  This  1287 
is  of  course  exclusive  of  the  Head  Federation  and  the  fairly 
considerable  number  of  cooperative  banks  outside  of  any 
federation  whose  exact  nature  it  is  more  difficult  to  deter- 
mine. Of  these  1287  banks  125 1  reported.  These  1251^ 
banks  had  a  combined  surplus  and  share  capital  well  in  cx- 

*Herrick  and  Ingalls,  op.  cit.,  p.  382  et  seq. 


230  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [230 

cess  of  $100,000,000.00,  total  assets  of  more  than  $531,000,- 
000.00  and  an  enrollment  of  901,121  members.^  -i 

-  The  former  empire  of  Austria  also  showed  an  extra- 
ordinary development  of  people's  banks.  As  in  Germany, 
so  in  Austria  there  had  been  rudimentary  cooperative  socie- 
ties for  many  years.  Friendly  societies  for  charitable  loans 
were  also  known.  These  facts,  combined  with  the  similarity 
of  language  and  of  institutions  and  the  common  membership 
— until  1866  at  least — in  the  Germanic  Confederation,  made 
it  as  easy  for  the  ideas  of  Schulze-Delitzsch  to  spread  in 
Austria  as  in  the  states  later  consolidated  in  the  German  em- 
pire. Once  in  Austria  the  idea  spread  rather  naturally  to 
people  speaking  languages  other  than  German.  The  first 
Schulze-Delitzsch  bank  in  Austria  was  started  in  1858.  By 
1870  there  were  943  and  by  1913  there  were  3,599.^ 
Many  of  these  are  now  of  course  in  Czecho-Slovakia  and 
in  Poland. 

A  survey  made  just  before  the  war  brought  out  the  fact 
that  there  were  at  that  time  19,091  registered  cooperative 
societies  within  Austrian  boundaries.  These  included  a 
wide  variety  of  cooperative  effort.  But  3,5 1 1  were  Schulze- 
Delitzsch  people^s  banks.  Of  these,  431  had  joined  the  fed- 
eration of  Schulze-Delitzsch  cooperatives.  Of  these  but 
414  sent  in  reports.  The  reports,  therefore,  cover  less  than 
one-eighth  of  the  total  number  of  banks.  Presumably 
those  within  the  federation  are  larger  than  those  outside. 
But  these  414  people's  banks  showed  a  combined  share 
capital  and  surplus  of  69,702,756  crowns,  (approximately 
$20,000,000.00)  and  borrowed  capital  of  470,392,068 
crowns,  or  approximately  $94,000,000.00  more.^ 

^H.  Criiger,  Jahrbuch  des  Allgemeinen  Vcrbandes  fur  1914  (Berlin, 
191S),  p.  7. 

'Herrick  and  Ingalls,  op.  cit.,  p.  365  et  seq. 
»H.  W.  Wolff,  op.  cit.,  p.  160. 


231]  THE  PEOPLE'S  BANKS  IN  MANY  LANDS  23 1 

Hungary  contained  urban  cooperative  credit  institutions 
of  various  types.  Among  these  we  know  that  there  are 
some  Schulze-Delitzsch  banks.  The  Hungarian  Central 
Bank,  or  Central  Society  for  Cooperative  Credit,  established 
in  1898  after  the  general  model  of  the  Preussenkasse,  had 
attached  to  it  in  191 2  no  less  than  2,412  cooperative  banks.^ 
But  of  these  all  but  226  were  agricultural  societies  and  none 
of  the  others  were  true  Schulze-Delitzsch  banks.  In  ad- 
dition to  these  there  are  a  number  of  other  cooperative  and 
semi-cooperative  institutions,  but  it  is  not  possible  to  state 
how  many  of  these  are  true  people's  banks,  or  even  how 
many  of  them  are  truly  cooperative.^ 

In  Switzerland  the  chief  urban  cooperative  banks  are 
Unions  du  Credit  copied  after  Francois  Haeck's  Union  in 
Brussels,  rather  than  after  the  Luzzatti  type  to  the  south 
or  the  German  model  to  the  north.  The  Schweiserische 
Volkshank,  for  example,  had  shares  of  icxx)  francs 
($200.00)  each.  In  its  report  the  number  of  artisans  was 
included  in  the  number  of  laborers,  but  these  classes  together 
included  only  4,287  out  of  69,026  shareholders.^ 

In  Italy  it  will  be  recalled  there  were  some  735  banks 
with  an  aggregate  membership  slightly  over  half  a  million 
and  deposits  of  about  $200,000,000.00.  1 

The  greatest  extension  of  cooperative  banking  however, 
has  probably  been  in  Russia,  where  there  were  in  191 3  no 
less  than  3300  such  banks.  Of  these  3,019  reported. 
These  3,019  contained  1,736,301  members.  Their  share 
capital  was  $23,662,275.00  and  their  loans  outstanding 
amounted  to  $109,193,390.  These  banks  were  united  into 
federations,  but  these  federations  had  no  authority  to  audit 

*Herrick  and  Ingalls,  op.  ctt.,  pp.  37^-37^' 

'H.  W.  Wolff,  op.  cit,  pp.  16CH161. 

•H.  W.  Wolff,  op.  cit.,  p.  325.  ,      .  ! 


232  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [232 

or  to  control  the  affairs  of  their  member  societies.^  These 
figures  are  exclusive  of  Finland,  where  there  are  many  co- 
operative institutions.  But  it  seems  probable  that  most  of 
the  several  thousand  cooperative  banks  in  Finland  are  of 
the  Raiffeisen  type.  Even  assuming  that  only  a  portion  of 
the  Finnish  cooperatives  were  people's  banks  it  seems 
possible  that  before  the  war  there  were  in  the  Russian  Em- 
pire more  than  two  million  people  who  were  members  of 
some  people's  bank. 

Even  these  stupendous  figures  have  been  exceeded  since 
the  outbreak  of  the  war.  In  191 3  there  were  3300  such 
banks;  on  Jan.  i,  191 5,  there  were  no  less  than  4078. 
Since  the  Bolshevik  Revolution  it  is  more  difficult  to  tell 
just  what  has  happened.  There  is,  however,  one  great  dif- 
ference between  the  Russian  and  the  true  Schulze-Delitzsch 
people's  banks;  the  Russian  banks  engage  in  other  business 
besides  banking.  For  example  many  of  them  market  their 
members'  product.^ 

In  British  India  there  have  been  for  ages  institutions 
know  as  Kuttuchuttii,  and  since  about  1850  there  have  been 
others  known  as  Nidhis.  The  first  of  these  resembles  to 
some  extent,  and  the  latter  resembles  exactly,  the  American 
savings  and  building-loan  association,  with  the  exception 
that  both  may  lend  on  personal  security.  They  are  thus 
somewhat  like  the  Massachusetts  Credit  Unions.  1 

Late  in  the  last  century  cooperative  credit  institutions 
were  introduced.  These  were  of  a  somewhat  modified  type, 
but  there  are  now  a  large  number  of  rural  banks  and  also 
some  415  urban  cooperative  credit  institutions.^ 

*Herrick  and  Ingalls,  op.  cit.,  pp.  398-399. 

•H.  W.  Wolff,  op.  cit,  p.  189  and  J.  V.  Bubnoff,  The  Cooperative 
Movement  in  Russia  (Manchester,  1917),  p.  51. 
•Herrick  and  Ingalls,  op.  cit.,  pp.  428-412. 


233]  ^^^  PEOPLE'S  BANKS  IN  MANY  LANDS  233 

In  Japan  there  is  an  indigenous  form  of  urban  coopera- 
tive credit,  though  in  the  form  of  a  cooperative  investment 
association.  Money  is  raised,  not  only  by  the  subscriptions 
of  members  for  shares,  but  also  by  making  each  member 
place  a  certain  number  of  shares  with  his  friends.  In  19 17 
there  were  173  such  associations  with  a  paid-up  capital  of 
3,111,931  yen  (approximately  $1,500,000.00).  These  as- 
sociations have  been  given  an  assured  legal  position  by  a 
law  passed  in  191 5,  but  their  membership  is  by  statute  re- 
stricted to  persons  who  already  possess  $15,000.^ 

In  the  French  African  provinces,  Algeria,  Tunis  and 
French  West  Africa,  efforts  have  been  made  to  extend  co- 
operative credit,  but  chiefly  by  means  of  cooperative  bor- 
rowers' associations  rather  than  by  people's  banks.  In 
Egypt,  Omar  Lufty  Bey  attempted  to  organize  a  rural  credit 
institution;  but  in  view  of  the  condition  of  the  Egyptian 
law  he  was  compelled,  like  Luzzatti,  to  organize  his  bank 
as  a  corporation.^  It  has  thus  come  to  resemble  a  j^eople's 
bank  in  many  respects.  In  191 2  it  had  a  capital  of  $35,000 
and  had  outstanding  $105,000  in  loans,  chiefly  to  small 
farmers. 

Argentina  and  Uruguay  both  have  laws  authorizing  the 
formation  of  cooperative  societies,  but  the  cooperative  bank- 
ing movement  in  both  these  countries  has  been  largely  a 
government-fostered  program  for  extending  cooperation  in 
agriculture.  Thus  the  most  significant  development  of 
people's  banks  in  the  New  World  is  that  which  originated 
recently  in  Canada. 

Levis  is  a  suburb  of  Quebec.  Canada  permits  branch- 
banking,  a  system  which  everywhere  seems  to  create  a  need 
for  some  supplementary  credit  institutions.     In  this  town 

*  Wolff,  op.  cit.,  p.  359. 

'Hcrrick  and  Ingalls,  op.  cit.,  pp.  435-437- 


234  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [234 

then  there  seemed  to  be  a  real  need  for  some  source  of 
credit  for  the  smaller  borrowers.  To  the  solution  of  this 
problem  Mr.  Alphonse  Desjardins  devoted  some  fifteen 
years  of  study,  even  going  abroad  to  investigate  conditions 
there  and  to  talk  with  European  cooperators.  As  a  result 
of  his  study,  he  decided  on  the  adoption  of  the  Luzzatti 
plan.  But  there  was  no  law  authorizing  the  formation  of 
such  organizations  as  the  Luzzatti  banks.  Mr.  Wolff,  the 
famous  leader  in  the  English  cooperative  movement,  ad- 
vised him  to  go  ahead  anyway.  This  he  finally  did.  But 
instead  of  organizing  at  first  as  a  corporation,  as  did  Luz- 
zatti, Desjardins  chose  to  organize  as  a  voluntary  associa- 
tion. This  form  of  organization  is  not  so  well  adapted  for 
securing  capital  from  outsiders.  This  difference  from  the 
European  prototype  was  still  further  emphasized  in  1906 
when  the  statute  authorizing  such  associations  was  passed, 
for  this  statute  prohibited  the  receipt  of  deposits  from  non- 
members.^  Thus  the  Canadian  institutions  ceased  to  be 
banks  in  any  strict  sense  of  the  term  and  became  a  new  in- 
stitution, half-way  between  the  people's  banks  and  the  primi- 
tive friendly  or  provident  societies.  This  position  as  a  new 
and  unique  institution  was  still  further  emphasized  by  the 
fact  that  the  bank  at  Levis  undertook  as  part  of  its  regular 
business  the  work  which  in  Italy  was  called  "  honor  loans  ". 
It  helped  poor  wage-earners  over  periods  of  distress  by 
making  small  unsecured  loans. 

This  first  bank  was  started  December  6,  1900.  Shares 
were  set  at  five  dollars  each.  Members  might  pay  for  these 
in  instalments  and  might  purchase  as  many  as  they  pleased. 
Members  might  also  make  deposits,  but  only  members  might 
make  these  deposits.  These  deposits  might  be  withdrawn 
practically  at  will.     Shares  also  might  be  withdrawn  upon 

»H.  W.  Wolff,  People's  Banks,  p.  264. 


235]  THE  PEOPLE'S  BANKS  IN  MANY  LANDS  235 

a  month's  notice.  Thus  the  capital  of  the  association  was  a 
fluctuating  one.     Each  member  was  given  but  one  vote. 

For  many  years  loans  averaged  only  about  $200  each 
and  half  of  these  loans  were  for  sums  between  $10  and  $100. 
Nearly  ten  per  cent  of  the  loans  were  for  sums  less  than  $10. 
The  interest  from  these  loans  is  used,  first  to  pay  the  bank's 
expenses;  then  to  pay  interest  on  the  deposits,  usually  at 
3%;  thirdly,  to  build  up  an  indivisible  reserve  or  surplus 
to  which  at  least  10%  of  the  bank's  annual  profits  are  de- 
voted each  year;  and  finally,  to  pay  dividends  on  shares 
usually  at  the  rate  of  four  or  five  per  cent.  The  most  re- 
markable thing  about  this  bank  is  that  even  after  it  had 
been  operating  for  many  years  it  was  still  in  the  enviable 
position  of  never  having  lost  a  penny/ 

By  1912  the  bank's  surplus  was  $11,741.53,  its  paid-up 
share  capital  $114,343  and  its  deposits  $53,564.  By  1914 
its  assets  were  $304,985.92  and  its  membership  1,240.  By 
1920  it  had  on  hand  $206,231.90  in  cash  and  had  outstand- 
ing loans  to  the  amount  of  $887,277.02.  Its  share  capital  was 
$249,450  and  its  total  assets  no  less  than  $1,093,508.92. 
The  remarkable  record  of  this  institution  is  probably  due 
in  part  at  least  to  the  fact  that  M.  Desjardins  "  stood  by  the 
ship  "  and  served  as  president  of  this  institution  until  the 
time  of  his  death. 

The  success  of  this  bank  inspired  many  others  to  imitate 
it.  By  1914  there  were  nearly  150  such  associations  in 
Canada.  By  1920  there  were  nearly  two  hundred  of  them, 
with  assets  aggregating  more  than  $4,000,000. 

The  operations  of  a  Caisse  Populaire  of  the  Desjardins 
type  is  confined  to  a  single  electoral  district  or  area  within 
which  members  may  be  known  to  each  other.  Supreme 
authority  is  vested  in  the  annual  meeting.     There  are  nine 

*Herrick  and  Ingalls,  op,  cit.,  pp.  445-449. 


236  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [236 

directors,  some  of  whom  retire  each  year.  The  board  of 
directors  elect  the  president,  who  is  the  bank's  only  salaried 
official,  as  well  as  its  chief  executive  officer.  Next,  there 
are  three  supervisors  who  must  examine  the  accounts  and 
assets  collectively.  The  board  of  supervisors  may  suspend 
any  officer,  provided  they  call  the  shareholders  together  im- 
mediately thereafter.  The  committee  on  credit  consists  of 
four  members,  different  from  both  of  the  above.  These 
four,  together  with  the  president,  pass  upon  all  loans  and 
each  must  approve  before  the  loan  is  granted.  Every  effort 
is  made  to  stimulate  members  to  greater  care  and  to  greater 
thrift. 

But  the  great  contribution  which  the  Desjardins  banks 
have  made  is  not  only  that  of  a  new  structure,  but  also  that 
of  serving  a  new  purpose,  the  making  of  remedial  as  well 
as  of  business  loans.  Mr.  Desjardin's  work  has  been  the 
inspiration  of  the  prosperous  credit-union  movement  which 
has  sprung  up  in  the  United  States.  The  first  such  organi- 
zation within  our  boundaries  was  the  Caisse  Populaire  de 
Saint e  Marie  founded  in  1909  at  Manchester,  N.  H.  On 
August  20,  1921  this  association  had  assets  amounting  to 
$737,116.22. 

The  first  state  to  enact  legislation  legalizing  these  institu- 
tions was  Massachusetts.  Under  the  leadership  of  Mr. 
Pierre  Jay,  then  bank-commissioner  of  the  state,  a  statute 
was  passed  in  1910.  This  statute  differed  from  the 
Canadian  statute  chiefly  in  that  it  imposed  additional  re- 
strictions on  the  association's  officers.  It  also  gave  to  the 
organizations  an  American  name,  credit-union.  Finally  the 
new  law  contained  a  requirement  that  all  entrance  fees, 
transfer  fees,  and  one-4ifth  of  all  net  profits  should  be 
devoted  to  a  special  reserve,  to  be  known  as  the  guaranty 
fund.  Only  after  this  guaranty  fund  had  grown  to  a  sum 
equal  to  the  capital  of  the  association,  could  this  revenue  be 
disbursed  in  dividends. 


237]  THE  PEOPLE'S  BANKS  IN  MANY  LANDS  237 

Next,  this  infant  institution,  the  credit-union,  was  for- 
tunate in  enh sting  the  active  support  of  a  number  of  pubHc- 
spirited  citizens,  among  them  Mr.  E.  A.  Filene.  The 
phenomenal  growth  of  these  associations  within  Massa- 
chusetts is  indicated  in  the  table  at  the  end  of  this  chapter. 
These  organizations  are  now  united  in  a  Massachusetts 
Credit-Union  League. 

A  typical  Credit-Union  was  organized  among  the  city 
employees  of  the  City  of  Boston  in  191 5.  The  investiga- 
tion which  led  to  its  organization  disclosed  the  fact  that 
some  employees  were  borrowing  from  money-lenders  at 
rates  which  averaged  180  per  cent  a  year  and  furthermore 
that  "on  an  average  over  a  hundred  men  lost  a  half  day's 
pay  each  week  in  order  to  make  necessary  arrangements  with 
money-lenders  to  withdraw  assignments  of  wages.  . . ."  ^  In 
two  years  this  City  of  Boston  Employees'  Credit  Union 
made  725  loans  totaling  $56,680.01.  On  these  its  losses 
aggregated  $54.  The  average  interest  paid  by  borrowers 
was  8  per  cent.  This  covered  all  expenses,  losses  and  the 
necessary  additions  to  the  guaranty-fund  and  also  permitted 
a  dividend  to  stockholders  of  6  per  cent. 

Among  the  more  successful  credit-unions  has  been  the 
one  organized  among  the  employees  of  the  telephone  com- 
pany. This  association  has  done  excellent  work  in  en- 
couraging its  members  to  purchase  at  sales  and  for  cash  in- 
stead of  buying  on  credit.  As  the  assets  of  this  credit- 
union  have  grown,  it  has  been  discovered  that  the  demand 
for  loans  has  not  grown  proportionately.  Apparently 
about  $200,000  can  be  employed  at  any  one  time  in  loans  to 
members  of  the  union.  This  ^um  apparently  will  take  care 
of  all  the  families  in  temporary  need  because  of  sickness, 
death  or  some  of  the  other  ills  which  normally  cause  dis- 

*  J.  M.  Cur  ley,  City  of  Boston  Employees*  Credit  Union  (published 
"by  City  of  Boston  Printing  Department,  1917). 


238  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [238 

tress.  This  sum  will  suffice  to  take  care  of  borrowers  until 
the  time  comes  when  they  can  repay.  But  the  assets  of 
this  union  are  now  in  excess  of  $400,000.  Thus  the  union 
has  become  a  considerable  purchaser  of  investment  bonds. 
Luckily  the  law  allows  the  credit-union  to  make  any  invest- 
ment which  would  be  legal  for  savings  banks. 

This  steady  growth  of  assets  until  it  exceeds  the  demand 
for  remedial  loans  seems  to  be  characteristic  of  many 
credit-unions.  Some  use  as  little  as  one  tenth  of  their 
assets  in  this  way.  Thus  there  is  a  great  increase  in  the 
number  of  business  or  productive  loans.  Some  unions  are 
run  primarily  to  handle  this  business.  Others  are  encourag- 
ing members  to  buy  homes.  In  such  cases  the  union  will 
usually  lend  to  the  prospective  purchaser  on  a  second 
mortgage  provided  the  first  mortgage  is  conservative. 
Some  of  the  credit  unions  carry  very  considerable  cash  re- 
serves. 

Some  evidence  of  the  success  of  these  credit-unions  may 
be  seen  in  the  fact  that  in  five  years  the  loans  of  the  credit- 
unions  have  grown  from  half  a  million  to  four  million  dol- 
lars. During  this  same  period  the  number  of  licensed 
money  lenders  in  Massachusetts  has  decreased  from  127  to 
59,  and  the  capital  invested  in  this  private,  money-lending 
business  decreased  from  over  $7,000,000  to  less  than  $2,- 
000,000.  Yet  the  credit-union  capital  which  has  made  this 
change  possible  has  been  collected  in  very  small  sums.^  It 
is  estimated  that  the  average  entrance  fee  is  only  twenty-five 
cents  and  that  in  at  least  half  the  associations  shares  may 
be  paid  for  at  the  rate  of  twenty-five  cents  a  week.  In  a  few 
credit-unions  these  payments  are  as  low  as  ten  cents  a  week, 
and  even  in  this  period  of  hard  times  not  a  single  Massa- 
chusetts credit-union  has  as  yet  been  forced  into  liquidation. 

1  R,  F.  Bergengren,  The  Credit  Union,  p.  22. 


239]  ^^^  PEOPLE'S  BANKS  IN  MANY  LANDS  239 

,  Outside  of  Massachusetts  and  New  Hampshire  the  first 
associations  to  be  formed  were  those  started  by  Mr.  Leonard 
G.  Robinson,  the  manager  of  the  Jewish  Agricuhural  and 
Industrial  Aid  Society.  His  first  cooperative  bank  was  one 
for  farmers  founded  at  Fairfield,  Conn,  on  May  i,  191 1. 
These  banks,  however,  differed  from  the  Desjardins  credit- 
unions.  They  were  voluntary  associations,  organized  in 
states  which  had  no  credit-union  statute.  They  were  thus 
subject  to  no  special  restriction  and  thus  received  very 
considerable  loans  from  non-members,  or  at  least  from  a 
non-member  institution.  By  the  close  of  191 3  there  were 
18  such  banks. 

The  next  development  was  a  growing  interest  in  the 
Massachusetts  credit-union  movement.  With  the  spectacle 
of  the  success  in  'Massachusetts  before  them,  New  York, 
Rhode  Island,  North  Carolina  and  New  Hampshire  enacted 
similar  statutes.  Virginia  and  Kentucky  have  followed 
within  the  present  year.  Maine  has  authorized  one  such 
credit-union  by  special  act  of  the  Legislature.  South  Caro- 
lina has  enacted  a  different  law  which  has  hedged  her  credit- 
unions  with  extra  provisions  for  safety.  These  have  made 
the  formation  of  such  unions  unnecessarily  difficult.  Utah, 
Wisconsin,  Texas  and  Oregon  have  each  enacted  statutes 
authorizing  associations  which  differed  from  the  Des- 
jardins model,  most  of  these  states  requiring  paid-up  shares 
of  considerable  value  as  a  prerequisite  to  doing  business. 
Neither  in  this  country  nor  abroad  has  it  been  possible  to 
organize  people's  banks  on  such  a  basis.  Thus  it  is  re- 
ported that  no  associations  have  been  formed  under  the  law 
of  these  four  states.  But  there  are  very  successful  asso- 
ciations operating  in  those  states  which  have  copied  substan- 
tially the  Massachusetts  statute. 

North  Carolina  imposed  one  additional  restriction  on  the 
business  of  these  credit-unions  in  her  statute  when  that  was 


240  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [240 

passed.  The  credit-unions  there  may  use  their  funds  for 
productive  purposes  only.  This  has  brought  the  North 
Carolina  credit-unions  back  a  step  toward  the  German  pro- 
totype and  has  restricted  their  usefulness  chiefly  to  farmers. 
But  they  seem  to  be  serving  these  farmer  members  ex- 
tremely well.  Mr.  G.  S.  Patterson  of  the  state's  Depart- 
ment of  Agriculture  reports  that  one  such  credit-union 
among  its  other  transactions  purchased  for  its  members 
$7100  worth  of  fertilizer  on  which  it  was  successful  in  sav- 
ing them  more  than  $1400. 

It  is  reported  that  at  the  present  time  there  are  groups  of 
men  in  fifteen  other  states  who  are  eager  to  see  a  credit- 
union  statute  passed  in  their  own  states,  and  who  are  ready 
to  assist  in  the  formation  of  such  organizations.  The  record 
then  of  these  provident  associations  or  credit-unions  is  one 
of  extraordinary  success. 


:24l] 


THE  PEOPLE'S  BANKS  IN  MANY  LANDS 


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;  CHAPTER  XIV  j 

The  Essence  of  Cooperation: 

In  tracing  the  history  of  even  that  small  portion  of  the 
cooperative  movement  which  has  been  connected  with  the 
development  of  the  people's  banks,  one  cannot  fail  to  be 
impressed  by  the  wide  variety  of  institutions  which  have 
been  heralded  as  cooperative.  Nor  can  one  fail  to  be  equally 
impressed  by  the  bitter  differences  of  opinion  which  have 
often  arisen  between  these  various  branches  of  the  coopera- 
tive movement.  In  part,  these  differences  of  opinion  have 
been  traceable  to  local  sources  of  irritation,  but  in  part  they 
have  been  due  to  more  fundamental  differences  of  view  witK 
respect  to  the  essential  nature  of  cooperation  itself.^  In  fact, 
there  have  been  at  least  five  different  sets  of  views  witH 
respect  to  the  essence  of  the  cooperative  movement.  With 
these  five  sets  of  views  are  associated  five  different  defini- 
tions of  cooperation. 

There  is,  first  of  all,  the  kind  of  definition  given  the  first 
place  in  most  lexicons,  "  Cooperation  is  collective  action  for 
some  common  end,  especially  in  industry  "  says  the  Century 
Dictionary.  And  only  under  so  comprehensive  a  definition 
as  this  could  we  include  as  cooperative  some  of  the  earlier 
organizations  which  are  generally  regarded  as  coming  within 
the  cooperative  group.  Only  an  inclusive  definition  of  this 
type  would  cover  organizations,  such  as  the  Owenite  com- 

1  W.  E.  (Snell,  "  What  is  Cooperation  ? ",  Economic  Review,  vol.  vi„ 
p.  528. 

242  [242 


243]  -^^^  ESSENCE  OF  COOPERATION  243 

munities  ^  and  the  wide  variety  of  institutions  described 
by  Huber.^ 

Definitions  of  the  second  type  regard  the  social  class  of 
the  members  of  the  cooperative  unit  as  the  distinctive  line 
of  demarcation.  Thus  Devine,  the  secretary  of  the  Urban 
Cooperative  Banks  Association  of  England,  has  ddfined  co- 
operative banks  as  "  societies  composed  of  small  tradesmen, 
clerks,  artisans,  and  working  people  generally,  with  the  addi- 
tion of  such  members  of  other  sections  of  society  as  they 
invite  or  approve — "  ^  and  again  "  a  Cooperative  Bank  is  a 
mutual  society,  formed,  composed  and  governed  by  work- 
ing people  themselves — ".*  This  concept  of  cooperation 
appeared  early  in  the  English  movement.  It  characterized 
even  the  earliest  English  efforts  in  cooperative  finance,  such 
as  the  early  local  friendly  societies  and  savings  banks.  Even, 
today  this  definition  characterizes  pretty  well  the  view  of 
cooperation  held  by  representatives  of  the  English  coopera- 
tive banks.'' 

A  definition  of  a  third  type  was  decided  upon  in  1873  by" 
the  cooperative  Congress  at  Newcastle-on-Tyne.  Their- 
resolution  read  as  follows :  "  Any  society  should  be  re- 
garded as  cooperative  which  divided  profits  with  labor  or- 
trade  or  both."  Thus  the  line  of  demarcation  was  made  to> 
depend  on  whether  or  not  the  profits  went  to  those  who* 
furnished  the  capital.  In  similar  vein  John  Stuart  Mill  said, 
"  Cooperation  is  where  the  whole  of  the  product  is  divided^ 
What  is  wanted  is  that  the  working  class  should  partake  of 
the  profits  of  labor."  * 

*  Cf.  chap,  i,  supra. 

*Cf.  chap,  ii,  supra. 

•Devine,  Henry  C,  People's  Cooperative  Bank  (Londooi,  1908),  p.  i. 

-*  Ihid.,  p.  2. 

•C/.  WolflF,  op.  cit.,  pp.  717-172.  ■ :  - 

•Holyoake,  History  of  Cooperation,  vol.  ii,  p.  76. 


244  ^^^  EVOLUTION  OF  PEOPLE'S  BANKS  [244 

A  very  slight  modification  of  this  definition  was  pre- 
sented to  the  American  pubHc  by  Francis  A.  Walker,  whea 
he  wrote, 

The  aim  Of  cooperation  is  to  get  rid  of  the  employer,  and  divide 
his  profits  among  his  former  workmen,  who  are  to  become, 
for  the  future,  self-employed :  to  organize  themselves,  in  their 
own  way,  for  industrial  purposes,  and  carry  forward  production 
on  their  own  account  and  at  their  own  risk.^ 

This  definition  was  primarily  designed  to  cover  industrial 
cooperation,  but  it  brings  out  clearly  one  concept — that  the 
aim  of  cooperation  is  to  get  rid  of  the  business  organizer. 
This  quasi-socialistic  concept  is  the  one  which  still  has  the 
greatest  vogue  within  the  United  States.  This  is  distinctly 
the  American  conception  of  cooperation. 

A  fourth  concept  is  that  of  cooperation  as  a  legal  form 
of  business  organization,  useful  often  for  certain  purposes 
and  useful  often  to  certain  classes,  but  not  necessarily 
'Confined  in  its  usefulness  to  one  purpose  nor  to  one  class. 
The  cooperative  syndicate  whose  use  forms  the  essential 
element  according  to  this  view,  need  distribute  no  dividends 
to  laborers  or  to  customers.  It  may  pay  large  dividends 
-on  its  shares  of  capital  stock.  It  may  produce  a  large,  if 
fluctuating,  income  for  its  organizer,  provided  he  remains 
the  controlling  officer.  This  is  the  type  which  in  this  book 
is  referred  to  as  syndicate-cooperation.  It  is  more  recent 
than  the  preceding  kind.  This  type  of  cooperation  dates 
"back  only  to  the  invention  of  Schulze-Delitzsch.  It  is  com- 
mon only  on  the  continent  of  Europe. 

Finally  there  is  the  Raiffeisen  type  of  cooperation.  Ac- 
cording to  both  Huber  and  Raiffeisen  the  cooperative  move- 
ment was  a  means  of  elevating  the  moral  tone  of  economic 
life.     The  form  of  association  to  be  used  was  the  Schulze- 

^F.  A.  Walker,  Political  Economy  (New  York,  191 1),  p.  343. 


245]  ^^^  ESSENCE  OF  COOPERATION  245 

Delitzsch  syndicate,  sometimes  slightly  amended.  But  this 
choice  of  the  syndicate  form  was  merely  a  means  toward  a 
larger  end;  and  that  larger  end  was  not  socialistic,  but  reli- 
gious. In  some  respects  this  concept  of  cooperation  makes  the 
word  one  of  aspiration  and  almost  too  vague  for  definition. 
From  this  mysticism  there  was  some  reaction  even  among 
the  rural  syndicates  of  Germany,  so  that  now  in  many  places 
Raiffeisenism  means  only  a  few  amendments  to  the  syndi- 
cate-cooperative form,  but  in  many  lands  the  Raiffeisen 
bank  is  still  primarily  a  means  of  moral  education. 

For  Americans  the  important  contrast  is  between  the  third 
and  fourth  concepts  of  the  movement.  The  third,  that  is 
the  present  American  concept,  that  of  the  cooperative  as- 
sociation as  a  means  of  getting  rid  of  the  business  organizer 
or  employer,  is  by  no  means  confined  to  America.  It  has 
appeared  within  the  cooperative  movement  in  many  lands. 
It  had  a  considerable  vogue  even  among  one  group  of  the 
Schulze-Delitzsch  syndicates.  It  will  be  recalled  that  even 
among  the  members  of  the  Universal  Federation,  this  was 
the  view  of  cooperation  held  by  the  group  of  cooperative 
stores  which  were  therefore  nick-named  **  socialistic."  This 
was  the  concept  of  cooperation  which  led  ultimately  to  their 
expulsion  from  that  federation  and  to  the  formation  of 
their  own  organization  at  Hamburg. 

The  "  middle-class  "  stores  of  the  Universal  Federation 
present,  on  the  other  hand,  a  very  clear  picture  of  the 
Schulze-Delitzsch  or  syndicate-cooperative  program.  To 
members  of  these  middle-class  stores,  the  cooperative  syndi- 
cate was  merely  the  form  of  business  organization  most 
convenient  for  their  purpose.  It  offered  to  them  the  cor- 
poration's centralization  of  administration  and  some  of  the 
corporation's  ease  in  securing  long-term  investment  capital 
together  with  all  of  the  partnership's  excellence  as  a  means 
for  securing  short-term  credit.     This  businesslike  attitude 


246  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [246 

toward  cooperation  has  dominated  not  only  Schulze- 
Delitzsch  himself,  but  also  his  huge  Universal  Federation,     i 

The  legal  form  known  as  the  cooperative  syndicate  then 
has  no  necessary  connection  with  any  program  of  social 
reform.  In  some  countries  the  cooperative  form  has  been 
used  by  Socialists  of  various  types,  but  it  has  been  more 
extensively  used  by  advocates  of  views  that  are  strikingly 
different.  Thus  during  the  last  fifty  years  of  the  German 
occupation  of  the  western  part  of  Poland,  the  cooperative 
form  was  largely  used  by  Poles  to  further  their  nationalist 
aspirations.  In  Prussia  itself  the  cooperative  form  was 
largely  supported  by  representatives  of  the  Lutheran 
Church  and  was  used  to  further  their  religious  ideals. 
In  France,  in  Italy,  in  Spain  and  in  Portugal  the  co- 
operative form  has  been  largely  used  by  people  who  de- 
sired to  extend  Catholic  Christianity,  while  in  Holland  and 
in  Belgium  the  Catholic  Church  has  been  the  chief  support 
of  the  rural  cooperative  movement.  As  a  democratic 
organization  in  which  a  certain  amount  of  personal  contact 
is  necessary,  the  cooperative  form  is  far  more  likely  than  the 
corporation  to  be  composed  chiefly  of  people  who  have  al- 
ready a  certain  consciousness  of  kind,  and  to  work  better 
because  of  that  likemindedness.  But  it  would  be  a  mis- 
take to  identify  the  cooperative  syndicate  with  either  Cath- 
oHcism  or  with  quasi-socialistic  programs  of  reform.  The 
cooperative  syndicate  as  such  has  no  views  and  no  pro- 
gram.    It  is  simply  a  form  of  business  organization. 

What  then  are  the  essential  characteristics  of  the  coopera- 
tive syndicate?  The  American  Cooperative  Savings  and 
Building  Loan  Associations  give  us  only  a  partial  clue,  for 
they  have  a  specialized  form  of  their  own.  Among  the 
business  forms  known  to  American  law  the  cooperative 
syndicate  resembles  most  closely  the  almost  obsolete  type 
of  organization  known  as  the  joint-stock  company  at  com- 


247]  ^^^  ESSENCE  OF  COOPERATION  247 

mon  law.  But  the  syndicate  contains  within  its  structure 
safeguards  not  known  in  that  type  of  organization,  safe- 
guards whose  absence  has  justly  caused  the  common-law 
joint-stock  company  to  be  regarded  with  distrust.  If  our 
comparison  be  confined  to  the  business  forms  now  in  use, 
the  cooperative  syndicate  will  be  found  to  stand  about  mid- 
way between  the  ordinary  or  general  partnership  and  the 
business  or  joint- stock  corporation. 

The  capital  of  the  cooperative  syndicate  may  be  raised  by 
donations,  but  that  is  extremely  rare.  The  working  funds 
may  be  borrowed  in  their  entirety,  that  is,  the  syndicate 
may  depend  entirely  upon  the  remarkable  excellence  of  its 
credit.  This  is  common,  but  it  is  common  only  among 
the  smallest  syndicates.  Ordinarily  the  capital  of  a  syndi- 
cate is  raised  by  the  sale  of  shares  of  its  capital  stock.  In 
that  case  no  one  may  become  a  member  of  the  syndicate 
without  purchasing  at  least  one  share  of  capital  stock. 
Furthermore  each  member  ordinarily  is  free,  and  even 
encouraged,  to  purchase  as  many  shares  as  he  can  afford. 
Shares  may  often  be  paid  for  by  instalments,  but  the  time 
within  which  these  payments  must  be  completed  is  definitely 
limited.  The  size  of  shares  in  each  syndicate  is  determined 
by  its  articles  of  association  or  charter,  but  each  share  is  of 
the  same  size.  In  many  respects  then  the  syndicate  re- 
sembles the  joint-stock  corporation. 

The  credit  of  the  cooperative  syndicate  is  due  to  the  ad- 
ditional liability  of  its  stockholders.  This  may  be  limited 
to  an  additional  amount  equal  to  the  par  value  of  its  shares, 
as  is  the  case  in  our  American  national  banks,  or  it  may  be 
unlimited,  as  in  the  case  of  the  ordinary  American  partner- 
ship. Between  these  two  extremes,  that  is,  between  limit- 
ing the  member's  liability  to  twice  the  value  of  his  share 
and  leaving  it  entirely  unlimited,  each  cooperative  syndicate 
may  usually  decide  for  itself  by  prescribing  the  amount 


248  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [24,^ 

of  its  members'  liability  in  its  articles  of  association. 
Naturally  then  these  articles  of  association  must  be  a  matter 
of  public  record,  and  the  formality  of  becoming  a  registered 
syndicate  is  considerable. 

This  additional  personal  liability  of  members  in  case  of 
insolvency  can  usually  be  enforced  only  after  the  assets  of 
the  syndicate  have  been  exhausted.  The  liability  of  mem-- 
bers  varies  with  their  stockholdings,  but  only  in  a  rather 
unique  way.  Each  member  in  a  syndicate  with  limited 
liability  will  be  assessed  the  entire  amount  of  his  liability 
on  his  first  share  before  any  member  may  be  compelled  to 
pay  any  part  of  his  liability  on  his  second  share.  In  asso- 
ciations with  unlimited  liability,  usually  each  must  pay  the 
same  amount  until  the  entire  assets  of  the  poorest  member 
are  exhausted.  Then  the  deficit  still  remaining  is  divided 
again  among  the  others  in  the  same  fashion.  Every  mem- 
ber is  thus  given  a  direct  and  powerful  motive  to  do  all  pos- 
sible  to  prevent  bankruptcy. 

The  distribution  of  the  net  earnings  is  the  most  difficult 
subject  on  which  generalizations  must  be  made.  The  law 
differs  in  different  lands.  And  even  under  the  same  law 
there  is  often  considerable  diversity  of  practice.  Net  earn- 
ings may  be  used  for  paying  dividends  on  member's  shares. 
They  may  be  used  to  refund  a  portion  of  the  interest  and 
commissions  paid.  A  portion  is  usually  used  to  support 
some  federation  whose  purpose  is  to  extend  the  movement. 
A  portion  is  often  used  for  works  of  public  benefit. 
Ordinarily,  the  law  requires  that  a  portion  be  held  as  a  re- 
serve for  future  losses  and  occasionally  all  net  earnings  are 
thus  devoted  to  the  creating  of  a  permanent  surplus. 

This  caution  in  creating  reserves  and  surplus  is  due  in 
some  syndicates  to  idealistic  considerations,  but  in  many  it 
is  due  to  a  shrewd  appreciation  of  the  two  great  elements  of 
danger   in  the   syndicate    form.     These   two  elements    of 


249]  ^^^  ESSENCE  OF  COOPERATION  249 

danger  to  syndicate  members  are  (i)  the  extra  liability  for 
debts  of  the  syndicate,  and  (2)  the  fact  that  members  who 
retire  from  the  syndicate,  may,  after  a  certain  interval, 
withdraw  also  their  share  of  the  capital  in  so  far  as  that 
share  is  not  known  to  have  been  impaired  by  losses. 

These  two  risks  in  turn  have  necessitated  the  use  of  a 
more  complicated  administrative  mechanism.  As  compared 
with  the  American  corporation,  the  syndicate  would  prob- 
ably be  safer,  but  it  would  certainly  be  less  likely  to  under- 
take all  the  profitable  risks  offered.  The  administrative 
mechanism  of  a  cooperative  syndicate  is  divided  into  three 
parts:  the  execution  of  policy,  the  determination  of  policy 
and  the  negative  element  of  supervision  and  control.  Ex- 
ecution is  naturally  in  the  hands  of  the  officers.  These 
officers  may  be  independently  elected  and  may  be  ex-o^cio 
members  of  the  board  which  determines  the  policy  or  they 
may  be  mere  agents  of  that  board.  In  nearly  all  cases  the 
actions  of  this  policy-determining  board  are  subject  to 
periodic  review  by  a  supervising  body  which  may  tem- 
porarily suspend  the  board  and  summon  a  general  meeting 
of  all  members. 

The  most  unique  protection  of  all  is  found,  however,  in 
the  constitution  of  the  general  meeting  of  all  members. 
Here  ordinarily  no  proxies  are  permitted,  except  from 
minors  and  from  associations.  Those  who  hold  the  proxy 
of  a  minor,  or  of  an  association,  are  permitted  to  represent 
only  that  one  member.  Usually,  also,  each  member  has  but 
one  vote.  These  two  rules  have  had  several  results.  Together 
they  make  it  very  difficult  for  the  administration  of  a 
syndicate  to  plan  out  in  advance  a  program  for  a  meeting, 
and  then  to  push  that  program  through  the  meeting  without 
genuine  discussion.  The  interests  of  members  are  thus 
more  adequately  protected  against  "  log-rolling "  which 
might  benefit  only  a  portion  of  the  membership.  In  the 
second  place  this  rule  increases  the  interest  of  members  who 


250  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [250 

own  but  one  share  of  stock.     In  the  getting  of  new  business 
this  active  interest  on  the  part  of  the  ordinary  syndicate 
member  is  a  real  asset.     Finally,  these  rules  combined  with 
the  method  of  dividing  the  deficit  in  case  of  bankruptcy, 
make  it  possible  to  secure  members  whose  property  will  add 
materially  to  the  ci"edit  of  the  syndicate.     If  votes  were  dis- 
tributed in  accordance  with  investment,  particularly  if  prox- 
ies  were  also  permitted,   no  well-to-do   individual   would 
dare  join  such  a  syndicate  with  its  attendant  risks  unless 
he  could  purchase  enough  stock  to  secure  control.     There 
would  always  be  the  danger  that  a  few  people  with  but 
little  property  would  invest  what  little  they  had  in  the  stock 
of  the  syndicate  and  thus  elect  themselves  to  office.     Then, 
holding  control,  these  irresponsible  stockholders  could  bor- 
row money  on  the  credit  of  the  syndicate,  which  would  mean 
on  the  credit  of  the  richer  members.     They  could  then 
carry    on    the    business    as    they    pleased    without    much 
regard   to   the   wishes    of    the    richer  members.     In    line, 
then,  with  this  policy  with  respect  to  votes,  we  find  the 
custom  of  controlling  the  administration  by  means  of  cer- 
tain by-laws,  such  for  example  as  that  limiting  the  amount 
they  may  lend  to  any  one  individual.     It  is  a  very  interest- 
ing fact  that  the  only  country  where  the  cooperative  syndi- 
cate has  substantially  failed  in  competition  to  secure  the 
bulk  of  the  farmer's  credit  business  is  in  a  country,  France, 
which  has  subsidized  the  syndicate  to  a  most  extraordinary 
degree,  buj:  has  not  compelled  the  adoption  of  the  principle 
of  one-man-one-vote.     Yet  in  that  very  country  the  unsub- 
sidized,  but  democratically  managed,  syndicat  has  spread 
rapidly. 

Creditors  of  a  syndicate  have  a  claim  on  the  syndicate's 
assets  and  on  the  personal  assets  of  syndicate  mem- 
bers. As  one  conspicuous  member  may,  therefore,  some- 
times be  the  substantial  guaranty  for  the  solvency  of 
the    whole    syndicate,    it    is    important    first    to    provide 


2^l]  THE  ESSENCE  OF  COOPERATION  25 1 

a  means  by  which  he  may  withdraw  in  case  the  syndi- 
cate adopts  policies  which  he  '  regards  as  dangerous. 
Next,  fairness  to  creditors  demands  that  they  be  given 
ample  notice  of  any  change  in  the  syndicate's  credit  stand- 
ing. This  is  accomplished  by  making  a  member,  who  has 
withdrawn,  liable  for  a  definite  period,  often  two  years,  for 
debts  contracted  before  he  withdrew,  and  by  dating  his  with- 
drawal only  from  the  first  annual  balance  sheet  drawn  up 
after  his  resignation  has  been  entered  on  the  public  records. 
Next,  any  alarm  among  creditors  would  immediately  be  re- 
flected in  a  curtailment  of  the  syndicate's  credit.  This,  in 
turn,  would  hamper  the  very  operations  which  the  with- 
drawing member  regarded  as  dangerous.  This  power  of 
the  better  known  members  to  curtail  the  operations  of  those 
syndicates  which  have  inadequate  capital,  is  often  tacitly 
recognized  by  placing  such  men  either  on  the  board  of 
officers,  or,  more  commonly,  on  the  board  of  supervisors. 
In  the  Raiffeisen  banks  particularly,  it  has  come  to  be  an 
almost  regular  custom  that  the  chairman  of  the  board  of 
supervisors  shall  be  chosen  from  among  the  richest  members. 
But  the  men  whose  peculiar  contribution  to  the  syndicate  is 
thus  recognized  and  honored  are  the  men  who,  while  not 
necessarily  the  largest  stockholders,  do  most  to  improve  the 
credit  of  the  syndicate,  that  is,  they  are  the  men  who  would 
lose  most  if  the  syndicate  were  to  become  insolvent. 

The  cooperative  syndicate,  as  known  on  the  continent  of 
Europe,  differs  from  the  obsolete  American  common-law! 
joint-stock  company  in  that  it  offers  to  its  members  nine 
safeguards  which  are  not  present  in  the  latter  organization. 
These  safeguards  are:  (i)  Members  may  withdraw  both 
their  persons  and  their  capital.  In  case  of  disagreement  a 
member  need  not  wait  until  he  finds  some  one  who  is  willing 
to  replace  him  and  to  purchase  his  stock  with  its  attendant 
liability.  (2)  The  member's  liability  need  not  be  entirely 
unlimited.     (3)  Liability  for  the  deficit  in  case  of  insolvency 


252  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [252 

can  be  enforced  upon  members  only  in  a  legal,  orderly 
fashion.  Creditors  may  not  attack  at  once  the  property  of 
the  nearest  or  richest  member.  (4)  Administration  is  made 
somewhat  less  vigorous  and  less  profitable,  but  more  con- 
servative by  the  addition  of  the  council  of  supervision.  (5) 
The  rules  prohibiting  proxies  and  the  casting  of  more  than 
one  vote  by  any  member  tend  to  prevent  log-rolling  and 
also  to  prevent  the  adoption  of  policies  which  would  result 
in  immediate  profits  at  the  risk  of  ultimate  insolvency.  (6) 
Loans  may  be  made  only  to  members.  (7)  Membership  is 
restricted  to  those  who  continue  to  reside  in  a  definite 
geographic  area  which  must  be  prescribed  in  the  registered 
articles  of  association.  (8)  In  many  countries  the  law  en- 
forces upon  these  organizations  audit  and  examination  com- 
parable to  that  which  is  required  of  national  banks  in  this 
country.  (9)  Membership  can  not  be  purchased.  A  mem- 
ber may  withdraw  his  capital,  but  he  may  not  sell  it.  Mem- 
bership may  be  acquired  in  certain  cases  by  inheritance,  but 
apart  from  that  it  may  be  secured  only  by  election. 

The  definition  of  a  cooperative  syndicate  which  was  finally 
accepted  by  Schulze-Delitzsch  after  a  life-time  of  experience 
has  been  embodied  in  law.  Thus  the  legal  definition  in 
Germany  and  commonly  in  other  lands  as  well  is  ''  a  com- 
pany whose  membership  is  not  restricted  to  a  precise  num- 
ber, whose  purpose  is  the  furthering  of  the  economic  in- 
terests of  its  members  and  whose  method  of  achieving  this 
result  is  by  the  conduct  of  some  business  on  their  joint  ac- 
count." 

Finally,  it  is  safe  to  say  that,  since  the  origin  of  the  coopera- 
tive movement  in  England  during  the  first  half  of  the  last 
century,  there  has  been  no  single  event  in  its  history  nearly 
so  important  as  the  discovery  and  gradual  perfection  of  the 
legal  form  of  business  organization  whose  most  essential 
characteristics  are  summed  up  in  this  definition  of  the  co- 
operative syndicate. 


CHAPTER  XV 
The  Field  For  Cooperative  Credit 

The  sphere  within  which  the  cooperative  syndicate  has 
had  its  greatest  usefulness  is  fairly  clearly  marked.  When 
there  is  enough  banking  business  in  sight  to  warrant  the 
organization  of  a  corporation  with  considerable  capital  and 
a  full  complement  of  officers,  there  is — as  a  purely 
commercial  proposition  at  least — no  field  for  the  oooperative 
syndicate.  The  syndicate  banks  then  would  not  compete 
with  our  national  banks.  But  if  the  necessary  amount  of 
investment  capital  can  not  be  found,  or  if  a  corporation 
organized  with  only  such  capital  as  can  be  locally  subscribed 
would  be  too  small  to  command  the  necessary  degree  of 
credit,  or  if  the  volume  of  business  in  sight  were  too  small 
to  make  such  investment  profitable,  then  there  is  a  real  field 
for  the  credit  syndicate.  But  even  then  the  credit  syndi- 
cate can  not  thrive  by  making  small  honor-loans  to  the  pro- 
pertyless  any  more  than  can  a  commercial  bank.  There  is 
no  magic  in  the  cooperative  form  which  causes  its  officers  to 
be  gifted  with  a  special  good- fortune  in  the  making  of  un- 
safe loans.  In  those  few  cooperative  banks  where  such 
*'  honor  loans  "  are  made,  they  are  regarded  by  the  syndicate 
in  somewhat  the  same  way  that  its  charity  account  is  re- 
garded by  a  corporation.  The  cooperative  syndicate  is  de- 
signed to  serve  the  needs  of  business,  not  of  charity. 
Charity  may,  however,  be  an  incidental  by-product.  Fur- 
thermore, the  syndicate,  like  the  corporation,  can  succeed 
253]  253 


254  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [254 

only  if  it  can  find  officers  who  are  at  least  moderately  com- 
petent. 

On  the  other  side  there  is  no  field — as  a  purely  com- 
mercial proposition  at  least — for  the  cooperative  syndicate 
if  a  small  partnership  can  secure  the  business,  and  can  also 
command  the  capital  and  credit  necessary  for  its  perfor- 
mance, and  if  partners  can  be  found  who  are  willing  to 
assume  the  heavy  legal  risks  involved  in  entering  a  partner- 
ship agreement  and  are  then  willing  to  devote  their  time  as 
usual  to  their  regular  occupations  so  that  the  partnership^ 
business  need  not  be  expected  to  support  them  nor  to  pay 
for  their  time.  This  aspect  of  a  partnership,  the  impos- 
sibility of  conducting  business  under  it  without  a  con- 
siderable overhead  in  some  form  for  the  partner's  time  and 
risk,  has  kept  that  legal  form  from  ever  becoming  in  any 
country  a  real  competitior  for  the  business  of  the  coopera- 
tive syndicate. 

Even  within  these  limitations  the  types  of  business  in 
which  the  syndicate  has  succeeded  have  been  chiefly  of  two 
kinds.  First,  there  is  the  case  where  operations  requiring 
judgment  may  usually  'be  temporarily  postponed  until  the 
meeting  of  some  board,  and  the  volume  of  such  operations 
is  not  so  large  that  attendance  at  board-meetings  is  an  in- 
tolerable drain  upon  the  time  of  an  unpaid  officer.  With  this 
case  there  must  be  included  also  the  case  where  the  officers 
are  only  moderately  competent,  and  where  their  judgment 
is  moulded  in  part  by  the  constant  discussion  and  criticism 
of  their  fellow-members.  These  fellow-members  may  also 
actually  carry  a  considerable  portion  of  the  burden  of  ad- 
ministration by  serving  on  committees  or  by  watching  loans. 
This  case  is  fairly  typical  of  the  Raiffeisen  and  of  the 
smaller  people's  banks.  On  their  administrative  side  the 
rural  village  syndicates  all  over  the  world  may  be  fairly 
adequately  described  as  organizations  in  which  many  men 


255]  ^^^  FIELD  FOR  COOPERATIVE  CREDIT  255 

accomplish  things  which  could  be  done  by  an  expert  in  a 
small  fraction  of  the  time  actually  consumed,  but  which 
operate  under  conditions  that  make  it  prohibitively  ex- 
pensive to  import  the  expert,  and  where  the  presence  of  the 
expert  might  even  slow  down  the  rate  at  which  syndicate 
members  were  thus  educating  themselves  in  business  prac- 
tice. 

The  second  case  is  that  of  the  Schulze-Delitzsch  bank  in 
which  officers  are  paid,  often  by  the  receipt  of  a  very  con- 
siderable percentage  of  the  bank's  profits.  In  the  absence 
of  the  syndicate  form  these  officers  might  well  be  trying  to 
run  a  small  business  of  their  own.  They  might  even  be 
engaged  in  the  same  line  of  work,  but  they  would  not  in 
that  case  be  able  to  secure  the  much  larger  degree  of  credit 
and  consequently  rather  larger  profits  which  are  made  pos- 
sible by  organizing  their  bank  or  business  as  a  cooperative 
syndicate.  They  therefore  organize  such  a  syndicate  and 
become  its  board  of  officers.  Into  this  syndicate  they  then 
invite  as  members  those  business  men  whose  accounts  they 
would  like  to  secure  and  also  those  whose  credit  would 
strengthen  the  standing  of  the  syndicate.  This  promoter- 
like position  of  the  officers  of  the  larger  Schulze-Delitzsch 
syndicates  must  not  be  forgotten.  For  some  of  them  the 
cooperative  syndicate  is  simply  the  legal  form  through 
which  it  is  easiest  for  them  to  secure  capital,  credit  and  new* 
business. 

For  such  promoters  the  syndicate  form  would  have  sixj 
advantages  over  a  partnership  of  the  American  type.  The 
promoter's  liability  could  be  limited.  The  business  would 
not  be  bound  by  the  action  of  a  single  partner;  it  would  be 
liable  only  for  contracts  executed  by  the  whole  board.  The 
business  would  not  be  disturbed  by  the  death,  withdrawal  or 
addition  of  any  partner.  The  business  would  have  a  separate 
legal  existence.     The  capital  might  be  larger;  and,  finally, 


256  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [256 

the  credit  of  the  new  business  would  not  be  Hmited  to  the 
combined  personal  credit  of  the  officers;  it  would  be  in- 
creased by  the  addition  of  every  new  member. 

For  the  promoters  of  a  new  bank,  unless  they  were  men 
of  some  wealth,  the  syndicate  form  would  have  two  advan- 
tages over  a  corporation  so  small  that  the  promoters  could 
be  certain  to  retain  control.  These  advantages  are  that  the 
syndicate  could  secure  more  investment  capital  and  much 
more  credit. 

Finally,  if  the  volume  of  business  in  sight  were  large,  the 
promoters  of  a  new  bank  might  try  to  interest  outside 
capital  and  to  form  a  large  corporation  of  whose  control 
they  could  not  be  so  certain.  Over  such  a  corporation  the 
syndicate  form  would  offer  the  following  advantages  to 
them:' — ^(i)  Business  could  be  started  without  waiting 
to  secure  the  subscription  of  any  considerable  part  of  the 
capital  stock.  The  capital  of  the  new  business  could  be 
built  up  gradually.  (2)  The  syndicate  form  with  its  per- 
sonal contact,  would  tend  to  keep  customers  interested  and 
thus  tend  to  reduce  advertising  expenses  and  to  build  up 
business,  at  least  until  such  time  as  the  growth  in  size 
should  make  the  personal  contact  negligible.  (3)  The 
bringing  in  of  a  new  customer  would  be  likely  to  result  in 
the  bringing  in  of  a  new  member,  and,  consequently,  of  more 
capital  and  credit.  The  members  already  secured  may  help 
to  do  the  work  of  promotion.  (4)  It  is  easier  for  a  man 
with  little  capital  to  retain  a  working  control  over  a 
syndicate.  Within  a  corporation  some  one  individual  may 
at  any  annual  meeting  gather  in  enough  proxies  from  a  few 
large  stockholders  to  secure  control,  and  may  thus  deprive 
the  promoter  of  the  share  of  the  profits  for  which  the  pro- 
moter has  built  up  the  business.  In  the  syndicate  it  would 
be  necessary  for  the  promoter's  opponent  to  divert  the 
allegiance  of  a  larger  number  of  stockholders — and  a  wise 


257]  ^^^  FIELD  FOR  COOPERATIVE  CREDIT  257 

manager  can,  in  the  normal  conduct  of  the  business,  build  up 
a  considerable  group  of  friends  and  supporters. 

The  disadvantages  of  the  syndicate  form  to  the  promoter 
are,  in  the  first  place,  its  democratic  control.  The  promoter 
would  never  be  really  free  to  run  the  syndicate  as  his  own 
business.  In  the  second  place,  he  could  retain  control  only 
so  long  as  he  could  render  service.  When  he  grows  old  he 
may  be  honorably  retired  on  a  pension,  but  he  may  not  hope 
to  retire  and  live  on  the  continued  profits.  Finally,  the  con- 
servatism which  is  likely  to  characterize  the  board  of  sup- 
ervisors may  prevent  him  from  taking  some  business  which 
would  be  profitable  or  from  rendering  services  which  would 
be  good  business-getters.  In  competition,  this  superior 
freedom  of  the  corporation  often  proves  to  be  a  very  im- 
portant advantage. 

This  business-like  attitude  toward  the  cooperative  syndi- 
cate is  to  be  found  chiefly  in  Germany,  and  it  is  in  Ger- 
many that  the  cooperative  syndicate  has  rendered  its 
greatest  service. 

Even  if  this  business-like  attitude  were  dominant  every- 
where, there  would  still  be  two  advantages  to  the  business 
community  as  a  whole  in  some  development  of  the  syndicate 
form.  Syndicate  organization  would  result  in  a  more  de- 
mocratic control  of  banks  in  those  districts  where  there  is 
business  enough  to  support  only  one  bank.  In  the  absence 
of  competition  a  bank  may  confer  upon  its  owners  some 
degree  of  monopoly  privilege,  to  which  a  more  democratic 
control  of  its  policies  by  its  borrowing  customers  might 
prove  to  be  a  desirable  antidote. 

More  important  than  this,  however,  is  the  reaction  which 
the  syndicate  form  would  have  upon  its  chief  officer.  The 
executive  officer  of  a  corporation  can  often  secure  the  re- 
tention of  his  position,  power  and  income  by  saving  and 
purchasing  the  corporation's  stock.     Assuming  the  compe- 


258  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [258. 

tence  of  the  two  officers  to  be  the  same,  it  would  be  found 
that  the  president  of  a  syndicate  can  secure  similar  prestige 
only  by  securing  superior  training.  A  young  man  who 
hoped  to  become  the  executive  of  a  small  corporation  might 
save  the  money  that  a  candidate  for  a  position  as  a  syndicate 
official  might  spend  in  securing  some  professional  training. 
Standards  of  professional  training  and  of  personal  efficiency 
are  certainly  higher  among  the  officers  of  the  larger  Schulze- 
Delitzsch  banks  than  among  the  executives  of  those 
American  state  banks  and  trust  companies  of  similar  size 
which  have  come  under  the  writer's  observation.  Part  of 
this  difference  is,  of  course,  due  to  a  more  general  condition, 
the  relative  cheapness  of  brains  on  the  continent  of  Europe. 
But  part  of  this  difference  seems  to  be  due  to  the  difference 
in  legal  form. 

Within  the  Luzzatti  banks  there  is  little  of  this  promoter 
attitude.  Within  the  smaller  people's  banks  outside  of  Italy; 
there  usually  is  not  a  great  deal  of  the  promoter  spirit. 
Within  the  Raiffeisen  syndicates  there  is  almost  none. 
Village  banks  all  over  the  world  have  been  largely  promoted 
by  the  officials  of  various  national  or  provincial  organiza- 
tions who  have  either  done  the  work  in  a  self -sacrificing 
spirit  of  public  service  or  have  demanded  pay  chiefly  in  the 
form  of  personal  prestige  and  of  political  power. 

Everywhere  the  Raiffeisen  syndicate  has  been  recognized 
as  the  form  of  cooperative  credit  from  which  the  greatest 
moral  and  educational  benefits  can  be  secured.  Everywhere 
then  banks  of  this  type  have  made  a  peculiar  appeal  to 
churchmen,  to  moral  reformers,  to  statesmen  and  to  pub- 
licists. But  the  Raiffeisen  bank  is  the  very  type  of  institu- 
tion which  it  is  most  difficult  to  start.  To  succeed,  there 
must  be  within  it  a  certain  degree  of  like-mindedness,  not 
only  as  to  the  purpose  of  the  syndicate,  but  also  as  to  the 
members'  general  outlook  on  life.     Furthermore,  it  has  sue- 


259]  ^^-^  FIELD  FOR  COOPERATIVE  CREDIT  259 

ceeded  chiefly  where  there  were  also  four  external  conditions^ 
namely — (i)  a  farming  country  divided  into  small  holdings, 
with  few  transfers  except  by  death,  and  with  but  little  farm- 
tenancy;  (2)  a  population  living  in  close  individual  con- 
tact so  that  each  knows  the  other's  manner  of  life;  (3)  a 
considerable  degree  of  agricultural  organization  already  in 
existence;  and  (4)  some  years  of  experience  with  the 
Schulze-Delitzsch  syndicate  under  the  same  legal  system.  In 
our  own  country  the  federal  land-banks  may  in  time  increase 
the  number  of  small  holdings.  Rural  telephones,  free  de- 
livery, good  roads  and  the  Ford  automobile  are  certainly  in- 
creasing the  number  of  contacts  our  farmers  have  with 
each  other.  But  in  this  country  there  is  as  yet  no  great 
degree  of  agricultural  organization;  and  American  experi- 
ence with  the  cooperative  syndicate  is  substantially  nil. 

The  other  kind  of  cooperative  association,  our  people's 
bank  or  credit  syndicate  with  share  capital,  has  also  been 
recognized  everywhere  as  bringing  to  its  members  both 
educational  and  moral  as  well  as  commercial  benefits.  On 
institutions  of  this  type  rest  the  reputations  of  both  Schulze- 
Delitzsch  and  Luzzatti.  Under  German  law  all  cooperatives 
must  conform  outwardly  at  least  to  this  form,  and  this  type 
also  has  received  considerable  aid  from  both  private  and 
public  sources.  But  any  wide-spread  propagation  of  these 
banks  without  previous  experiment  would  be  very  dangerous, 
and,  under  present  American  law,  even  experiment  is  danger- 
ous. 

In  no  civilized  country  today  are  borrowers  eager  to 
undertake  the  risks  involved  in  experiment  which  were  un- 
dertaken by  the  German  experimenters  of  the  last  century. 
Nor  is  there  inducement  to  them  to  do  so.  In  no  civilized 
country  today  is  there  left  anything  comparable  to  the 
barbarous  code  with  regard  to  deibt  which  prevailed  in  Ger- 
many during  part  of  the  nineteenth  century.     Nor  are  credit 


26o  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [260 

facilities  so  limited.  Therefore,  business  men  are  not  so 
desperate.  The  credit  syndicate  can  be  started  now  in 
most  countries  only  for  the  reason  which  has  caused  it  to 
survive  everywhere ;  that  is,  because  it  is  the  most  convenient 
legal  form  for  certain  purposes.  During  the  last  thirty 
years,  therefore,  experiment  has  in  most  countries  been  com- 
pelled to  wait  upon  legislation. 

As  to  the  probable  usefulness  of  the  credit  syndicate  to 
American  banking,  if  such  legislation  were  enacted,  it  would 
not  be  safe  to  speak  too  hastily.  Prophecy  is  always  un- 
wise. It  may  be  pointed  out,  however,  that  there  are  at 
the  present  time  in  the  United  States  more  than  18,000  state 
banks.  Most  of  these  probably  would  desire  to  keep  their 
present  legal  form  under  any  circumstances,  but  it  is  just 
possible  that  the  managers  of  some  of  the  smaller  of  these 
banks  might  be  glad  to  secure  the  greater  credit  standing 
possible  with  the  syndicate  form. 

In  general,  however,  cooperative  syndicates  have  rarely 
been  founded  by  the  conversion  of  going  enterprises  into 
the  cooperative  form.  Almost  always  has  the  syndicate 
arisen  because  it  made  possible  for  the  first  time  business 
which  had  not  been  possible  before.  Then  when  that  busi- 
ness has  developed  and  grown  profitable,  it  has  frequently 
happened  that  the  syndicate  has  been  converted  into  a  cor- 
poration. It  may  reasonably  be  hoped  that  legislation 
authorizing  credit  syndicates  might  then  safely  extend 
banking  facilities  to  some  who  have  not  yet  been  reached 
by  banks  organized  under  existing  laws. 

Outside  of  the  business  of  banking  it  may  also  reasonably 
be  expected  that  the  syndicate  form  could  render  consider- 
able service.  In  the  United  States  there  has  been  within  the 
last  thirty  years  an  enormous  amount  of  criticism  of  cor- 
porate administration,  but  at  the  same  time  an  increasing 
proportion  of  the  total  business  of  the  country  has  been 


26l]  THE  FIELD  FOR  COOPERATIVE  CREDIT  261 

done  by  enterprises  organized  under  this  much  criticized 
form.  Not  only  are  most  large  enterprises  organized  as 
corporations  but  many  small  businesses  as  well  have  been 
formally  incorporated.  The  corporation  offers  in  the 
United  States  the  only  avenue  by  which  a  business  man 
may  safely  secure  for  his  business  an  independent  existence, 
and  for  himself  limited  liability. 

This  process  of  compelling  all  who  desire  limited  liability 
to  incorporate  has  given  to  the  corporation  a  certain  prestige 
as  a  form  of  organization.  But  it  has  also  necessitated 
leaving  corporate  legislation  so  lax  that  all  these  various 
types  and  conditions  of  enterprises  can  be  crammed  in  under 
the  one  legal  form.  Financial  writers  in  this  country  dis- 
tinguish the  "  open  "  and  the  "  close  "  corporation.  In  many 
European  countries  this  same  distinction  is  made,  not  only 
in  economic  discussion,  but  also  in  law.  In  the  United 
States  the  law  makes  no  such  legal  discrimination.  The 
organizer  of  a  new  business  in  almost  any  one  of  the  larger 
countries  of  the  continent  of  Europe  would  have  open  to  him 
at  least  three  legal  forms  in  which  he  could  secure  limited 
liability.    In  America  he  would  have  but  one,  the  corporation. 

The  cooperative  syndicate  may  prove  to  be  a  welcome  ad- 
dition to  those  forms  of  business  organization  in  which 
liability  is  unlimited.  That  is  probable.  But  as  an  addi- 
tion to  the  legal  forms  with  limited  liability  there  seems 
little  room  to  doubt  the  possibility  at  least  of  its  usefulness. 
Just  at  present  in  America  there  seems  to  be  need  for  three 
business  forms  with  limited  liability  where  but  one  has  been 
until  now.  The  forms  with  limited  liability  for  which  there 
seems  to  be  a  present  need  are  (i)  The  joint-stock  corpora- 
tion, whose  shares  may  be  transferred  by  any  holder  without 
restriction — the  typical  "  open"  corporation;  (2)  The  close 
corporation  or  partnership  in  which  all  partners  have  limited 
liability.     Such  organizations  should  be  comparable  to  the 


262  THE  EVOLUTION  OF  PEOPLE'S  BANKS  [262 

German  Gesellschaft  mit  beschrdnkter  Haftung  or  the 
French  Societe  en  commandite;  (3)  The  cooperative  syndi- 
cate. 

The  creation  of  the  close  corporation,  or  partnership,  in 
which  all  partners  have  limited  liability,  might  involve  some 
difficulty.  That  is,  furthermore,  a  reform  which  should  be 
put  through  by  the  various  states.  But  if  the  cooperative 
syndicates  are  to  engage  in  the  business  of  banking  it  seems 
highly  desirable  that  they,  like  the  national  banking  asso- 
ciations, should  receive  their  charters  from  the  federal  gov- 
ernment. With  our  doctrine  of  the  comity  of  the  states,  lax 
legislation  in  some  one  state  might  cause  the  appearance  in 
:several  states  of  syndicates  organized  in  a  fashion  that  was 
fundamentally  unsound.  Even  if  syndicates  were  confined 
to  the  state  of  their  origin,  lax  legislation  in  any  one  state 
might  cause  a  series  of  disasters  which,  because  of  the 
■members'  additional  liability  for  the  syndicate's  debts,  might 
in  turn  cause  very  great  hardship.  Such  disasters,  occur- 
ring early,  might  go  far  to  discredit,  and  might  even  per- 
manently destroy,  the  opportunity  for  usefulness  of  a  really 
.-useful  institution. 

Americans  are  extraordinary  as  a  nation  of  organizers. 
In  corporate  organization  our  development  has  been  re- 
markable. Within  the  field  of  cooperative  credit  our 
American  savings  and  building-loan  associations  have  built 
'Up  a  business  which  makes  America  the  leading  cooperative 
country  of  the  world  if  the  assets  of  the  known  cooperative 
organizations  are  adopted  as  the  basis  of  comparison. 
Within  the  field  of  marketing  it  is  probalble  that  no  country 
in  the  world  could  show  cooperative  organizations  as  im- 
posing as  some  of  our  fruit-growers  associations  or  our 
export-associations  organized  under  the  Webb  Act.  In 
the  field  of  banking  our  national  banks  are  by  law  required 
Jto  be  formed  in  a  fashion  that  puts  them  at  least  one  step 


263]  THE  FIELD  FOR  COOPERATIVE  CREDIT  263 

on  the  cooperative  side  of  corporate  organization.  But  no 
national  bank  may  be  organized  with  a  capital  less  than 
$25,000.  There  is  apparently  then  still  plenty  of  room  for 
genuine  service  by  the  cooperative  syndicate — even  if  there 
should  also  be  the  very  properly  hoped-for  development  of 
the  Des  jar  dins  or  Massachusetts  credit-union.  There  is 
need  for  both  the  provident  association  and  for  the  syndi- 
cate-bank. 


BIBLIOGRAPHY 

Allain,   Albert,   L'Assurance   Contre  La  Maladie  Dans  La  Mutuality 

Francaise,  Paris,  1906. 
Ansell,  Rev.  Charles,  A  Treatise  on  Friendly  Societies,  London,  1835. 
Baernreither,  J.  M.,  English  Associations  of  Working  Men,  translated 

by  Alice  Taylor,  London,  1889. 
Bergengren,   Roy  F.,   The  Credit   Union,  issued  by  the  Credit  Union 

National  Extension  Bureau,  Boston. 
Cahill,  J.  R.,  Report  to  the  Board  of  Agriculture  and  Fisheries  of  an 

Enquiry  into  Agricultural  Credit  and  Agricultural  Cooperation  w 

Germany;    With  some  Notes   on   German  Live   Stock   Insurance, 

London,  191 3. 
Castelain,  Jean,  Le  Credit  Populaire   Urbain,  Son   Organisation,   Son 

Role  Economique  et  Social,  Paris,  1912. 
Criiger,     Hans,      Grundriss     des     deutschen     Genossenschaftswesens, 

Leipzig,  1908. 
,  Jahrhilcher  des  Allgemeinen  Verhandes  der  auf  Selhsthilfe  he- 

ruhenden  deutschen  Erwerbs  und  Wirtschaftsgenossenschaften  e.  V., 

Berlin. 
Devine,  Henry  C,  People's  Cooperative  Banks,  London,  1908. 
Fagneux,  Louis,  La  Caisse  de  Credit  Raiffeisen,  le  Raiffeisenisme  en 

France  et  a  l'£tranger. 
Fassbender,  Prof.  Dr.  Martin,  F.  W.  Raiffeisen  in  seinem  Leben,  Denken 

und   Wirken  in  Zusammenhange   mit  der  Gesamtentimcklung   des 

neuzeitlichen  Genossenschaftswesen  in  Deutschland,  Berlin,  1900. 
Finck,     Richard,     Das     Schulse-Delitzsch'sche     Genossenschaftswesen, 

Jena,  1909. 
Hamilton,  James  Henry,  Savings  and  Savings  Institutions,  New  York; 

1902. 
Herrick  (Myron  T.)   and  Ingalls   (R.),  Rural  Credits:  Land  and  Co- 

operative,  New  York  and  London,  1915, 
Holyoake,  George  J.,  Self  Help  One  Hundred  Years  Ago,  London,  1888. 
Jones,  Lloyd,  The  Life,  Times  and  Labors  of  Robert  Owen,  London, 

1890. 
Koehne,  Carl,  Die  Baugenossenschaften,  from  Stadtebauliche  Vortrage 

vol.  V,  no.  4,  Berlin,   1912. 
Massachusetts,     Commonwealth     of,     Reports    of    Commissioners    of 

Banking. 

264  ^  [264 


265]  BIBLIOGRAPHY  265 

,  Statutes  Relative  to  Cooperative  Banks,  Acts  of  1912,  chapter  623. 

Menikoff,  Theodore,  Le  Credit  Cooperatif  en  Allemagne,  en  Italie  et 

en  France,  Paris,  191 1. 
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1857. 
Redfern,  Percy,  History  of  the  C.  W.  S.,  Manchester,  1913. 
Republique  Francaise,  Ministere  du  Commerce,  de  Vlndustrie,  des  Postes 

et  des  Telegraphes:  Office  du  Travail,  Les  Associations  Ouvri^res 

de  Production,  Paris,  1897. 
Robinsob,  Margaret  Fothergill,  The  Spirit  of  Association,  London,  1913. 
Schulze-Delitzsch,  Hermann,  Vorschuss  und  Kredit  Vereine  als  VolkS' 

banken  Achte  neubearbeitete  AuHage  von  Dr.  Hans  Criiger. 
Seligman,  E.  iR.  A.,  Owen  and  the  Christian  Socialists,  reprinted  from 

Pol.  Sci.  Quart.,  Boston,  1886. 
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into  Friendly  and  Benefit  Building  Societies;  together  with  Minutes 

of  Evidence,  etc.,  presented  to  both  Houses  of  ParHament  by  Com- 
mand of  Her  Majesty,  London,  1871. 
Wilkinson,  J.  Frome,  Mutual  Thrift,  London,  189 1. 
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a  Chapter  on  Cooperative  Mortgage  Credit,  London,  1907. 
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second  edition,  London,  1896;  fourth  edition,  London,  1919. 
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INDEX 


Acceptances,  221  et  seq. 
Agricultural  cooperative  banks : 
Capital  invested,  114 
Membership,  114 
Organization,  113 
Policy,  114 
Algeria,  2Z2f 
Allegemeine      Genossenschaftstag, 

159-160 
Allen,  William,  12 
American  coop.,  savings,  and  bldg. 

and  loan  assns.,  246 
American  national  banks,  247 
Annual  convention.  Universal  Fed- 
eration : 
See :     Allgemeine     Genossen- 
schaftstag 
Anarchism,  16 
Argentina,  233 

Aristocratic  management,  27,  28 
Association  for  cabinet-makers,  15 
Association  for  goldsmiths,  15 
Association   of   all   classes   of  all 

nations,  14 
Augsburg,      Agricultural      Credit 

Union  of,  195,  196 
Austria,  230 
Austrian  cooperative  law,  91,  100 

Bakers,  Society  of  (Glasgow),  15 
Banca   Mutua  Populare  Agricola, 

212 
Banca  Populare,  Milan,  212  et  seq., 

219 
Banque  de  Solidarite  Commer^iale, 

228 
Bauerman,  46-47 
Belgium,  17,  229 
Bentham,  Jeremy,  12 
Berlin  Revolution  of  1848,  34 
Bernhard,  197 
Bernhardt,  Dr.,  46-47,  50 
Bill-of-exchange,  174  et  seq. 
Birkbeck  Bank,  48 
Bismarck,  Otto  von,  57,  75,  %l  et 

seq.,  92,  loi 

267] 


Blanc,  Louis,  15-16,  227 
Board  of  officers,  201-205 

Duties,  202,  204 

Liability,  202-203 

Membership,  201,  203 

Powers,  202 

Prerequisites  of  candidates,  205 

Salaries,  204 
Board  of  Supervisors : 

Duties,  197-198 

Legal  liability,  198 

'Membership,  197 

Powers  and  limitations,  198 

Salaries,  i99-2cx> 

Success  of,  200-201 
Bohmert,  Dr.,  66 
Boston,  City  of,  237 
British  India,  232 
Brussels,  Credit  Union  of,  229 
Buchez,  15-16,  24,  227 

Publications,  15 

Religion,  15 

Work,  16,  24 

Cabinet-makers,  association  for,  15 
Cabinet-makers'  Coop.  Purchasing 

Society,  43 
Caisse     Populaire     Sainte    Marie, 

1909,  236 
Canada,  233-236 
Capital : 

Debt  secured  by  mortgage,  148 
Delitzsch  plan,  167  et  seq. 
Limited    purchase    of    shares, 

104,  167 
Membership  contributions,  47, 

54  et  seq.,  167,  170 
Saving  and  accumulation,  116 
State  aid,  115,  i 17-132 
Variable  capital,  167 
Cash  credit,  175  et  seq.,  221 
Central   Cooperative   Society,   114- 

116 
Central  Federation  of  Cooperative 
Stores,  143 

267 


268 


INDEX 


[268 


Centralization  of  cooperatives 

See:  Cooperative  centrals 
Centrist  Party,  94,  loi 
Character  credit 

See:  Cash  credit 
Charitable  loan  societies,  18 
Charity,  25  et  seq.,  48,  55,  78,  253 
Oiristian  Socialism,  13,  23,  26 
Clerk  hire,  209 
Comitate  dei  reschi,  219 
Comitato  di  sconto,  219 
Committee,  181  et  seq. 
Committee  on  Honor  Loans,  220 
Committee  on  Risks :  ^ 

See :  Comitato  dei  reschi 
Competition,  25,  43  et  seq.,  51,  54. 

62 
Compulsory  legal  audit,  107  et  seq., 
225 

Opposition  to,  107 

Result,  108 
Congres  International  de  Bienfai- 

sance,  66 
Congress  of  German  Economists: 

Gotha,  66 
Congress  of  Handworkers,  19 
Congress  of  Vienna,  181 5,  56 
Conservative  Party,  22,  65,  83,  94, 

lOI 

Consiglio,  218 

Cooperation,  13,  20,  22  et  seq.,  27, 

61  et  seq.,  242-253 
Cooperative  banks 

See:  Peoples'  banks 
Cooperative  centrals : 

Lavir  controlling,  109-110 

Location,  115 

Membership,  no 

Preussenkasse,  121  ' 

Purpose,  no 
Cooperative  Congress,  14 
Cooperative  Council,  196 
Cooperative  credit,  field  for,  253- 

263 
Cooperative  Credit  Society,  46  et 
seq.,  61 

Capital,  47 

Disbanding  of,  47 

Membership,  46 

Purpose,  46-47 
Cooperative  factories,  16,  62,  77 

Advantages  of,  62 

Difficulties,  62 

Lasalle,  77 


Cooperative  Investors'  Association, 

II 
Cooperative  law,  91,  93,   100,    114, 

183  et  seq. 
Cooperative  production,  16,  23 
Cooperative    Purchasing     Society, 

40,  43,  44,  59 
Cooperative  savings  &  loan  assns., 
II,  23,  40,  45-48,  171 
Capital,  46-47 
Inclusive  membership,  48 
Schulze-Delitzsch,  45 
Unlimited  liability,  48 
Cooperative  stores,   14  et  seq.,  23, 

61,  68,  134,  136-144,  170 
Cooperative  syndicate,  245-252 
Counsel  Universal  Federation: 
Duties,  162-165 
Influence,  97 
Leadership,  96 
Schenck,  loi 
Schulze-Delitzsch,  96-101 
Credit,  17,  44,  54,  172 
Credit  au  Travail,  227 
Credit  Union  of  Brussels: 

See :  Brussels,  Credit  Union  of 
Credit  unions,  17,  50,  236-241 
Criiger,  Dr.  Hans,  6,  95,  122,  127 
et  seq.,  134,  137,  142  et  seq.,  146, 
ISO 

Debentures,  222 

Debt,  Restriction  of,  49 

Delitzsch,  Hermann  Schulze: 

See:    Schulze-Delitzsch,    Her- 
mann 
Delitzsch  Movement : 

See:   Schulze-Delitzsch  Move- 
ment 
Democratic  management,  27,  180  et 

seq.,  191,  216,  259 
Democratic  self-government: 

See:  Democratic  management 
•Denmark,  war  upon,  1864,  57 
Desjardins,  Alphonse,  234-236 
Devine,  Henry  C,  243 
Dillingen  Loan  &  .Savings  Union, 

196 
Dividends,  168-172,  194 
Dresdner  Bank,  144,  146 

Egypt,  233 

Eilenburg  Society,  46  et  seq.,  50, 
i66 


269] 


INDEX 


269 


Capital,  47 

Disbanding  of,  47,  166 
Founders,  46 
Membership,  46 
Plan,  47 

Employees,  221  et  seq, 

England,  12-15,  23 

Cooperative  stores,  14 
Cooperative  syndicate,  12 
Introduction  of  machinery,  12 
Manchester  Cooperative   Con- 
gress, 14 
Reform,  12 
Robert  Owen,  12-13 
IRochdale  cooperation,  15 

English   cooperative,    savings   and 
loan  assns.,  45,  48 

Era  of  promotion    (Griinderzeit), 
86 

Examination,  185  et  seq. 

Factories,  effect  of,  51-55,  62 

Competition,  51 

iGild  system,  52 

Handworkers'  Parliament,  52 

Political  unrest,  51 

Schulze-Delitzsch,  54 
Farmers,  5 

Fassbender,  Prof.  Dr.  Martin,  188 
Filene,  E.  A.,  237 
Finck,  Dr.  Richard,  47,  54,  100,  103, 

172,  176,  199 
Forward  League,  1 891,  136-137 

Domination  by  Socialists,  136 

(Significance  of,  136 

Admission  into  Universal  Fed- 
eration, 137 
France,  1$  et  seq.,  227-229,  250 
Franco-Prussian    War,    1870-1871, 

85 
Freehold  land   and  building  soci- 
eties, 23 
Free  trade,  67 

French  African  provinces,  233 
French  Socialism,  16 
French  West  Africa,  233 
Friendly  Society,   15,  43,   59,  212, 
223 

Galicia,  peoples*  banks  in,  171 
General  Assembly,  190  et  seq. 
General  Federation  of  Rural  Coop. 

Societies,  113 
German  banks,  216,  229,  257 


German  Cooperatives'  Bank,  80 
German  cooperative  societies  : 

Cooperative  factories,  16, 62,  77 
Cooperative    purchasing    soci- 
eties, 40-44,  59 
Cooperative  stores,  14  et  seq., 

61,  136-144 
Delitzsch    institutions,    50,   69, 

.84,  95 
Eilenburg  Society,  46  et  seq., 
50 
,Genossenschaft,  67 

Gild  system,  52  et  seq.,  65 
Giroverband,  84 
Joint-stock  corporation,  18 
Loan  associations,  40,  45-48 
.National  union,  70-73 
Raiffeisen  banks,  90 
Secretariat,  69,  97,  98 
Universal  Federation,  6,  79,  90- 
165 
German     Cooperative     Wholesale 

Company,  138 
German  Economists,   Congress  of, 

66 
German  Imperial  Reichstag,  90,  lOi 
German  political  history,  56-58 
German  Zollverein,  1834,  57 
Gilds,  18  et  seq.,  52  et  seq.,  63,  65 
Giroverband,  84 
Glackemeyer,  Dr.,  136 
Glasgow  Society  of  Bakers,  15 
Goldsmiths,  association  for,  15 
Gotha,  Congress  of  German  Econ- 
omists, 66 
Gotha,   second  annual  meetmg  of 

cooperatives,  71 
Group  consciousness,  207  et  seq. 
Griinderzeit : 

See:  Era  of  Promotions 

Haas,  W.,  113 
Haeck,  M.  Francois,  17 
Handworkers'  Parliament.  52,  54 
Hanover  Cooperative  Savings  and 

Bldg.  Loan  Assn.,  146 
Hanoverian    League    of    Peoples* 

Banks,  136 
Hardenberg,  reforms  of,  18 
Hauptverband : 

iSee:  Head  Federation 
Havenstein,  188 
Head  Federation : 
Indirect  aid,  126 


270 


INDEX 


[270 


Location,  124 

Management,  126 

Membership,  124  et  seq. 

Purpose,  124,  125 

State  aid,  126-131 
Herrick,  Myron  T.,  5,  224 
Howarth,  Charles,  14 
Howarth,  William,  15 
Huber,  Victor  Aime,  20-28,  55,  65, 

75,  136,  243  et  seq. 
Hungary,  peoples'  banks  in,  172,  231 

Imperial  Federation,  6,  113 
Inclusive  membership,  48 
Industrial    Revolution,     1770-1830, 

II,  51,  54 
Initiation  fees,  172 
Interest,  rate  of,  166  et  seq.,  170, 

178,  222 
Italian  banks,  216,  231 
Italian  Federation,  226 

Japan,  233 

Jay,  Pierre,  236 

Joint  liability,  48,  55 

Joint-stock    company   at   common 

law,  246  et  seq. 
Joint-stock    corporation,    18,    167, 

215,  224 
Jung-Litthauen,  73 

Konto-Kurrent : 

See:  Cash  credit 
Kuttuchuttu,  232 

Laissez-faire,  loi 
Landschaften,  119 
Lassalle,  75-77,  100 
League  audit,  187  et  seq. 
Levis,  Bank  of: 

See:  Canada 
Liability,  joint,  48,  55 
Liability,  limited: 

See:  Limited  liability 
Liability,  unlimited: 

See:  Unlimited  liability 
Liability,    unlimited    contributory, 

105 
Liberal  Party,  72-75,  84,  94 
Liege,  People's  Bank  of,  170,  222 
Limited   liability,   87,    102   et  seq., 

114,  169,  225,  261 
Loan  associations,  23,  40,  45  et  seq., 
169  et  seq. 


Eilenburg  Society,  46 
First  People's  Bank,  48 
Schulze-Delitzsch,  40,  45,   169 
et  seq. 

Loans,  169  et  seq.,  172-179,  221 

Local  autonomy,  180 

Louis  Phillipe,  15 

Luzzatti,  Luigi,  1841,  211-226,  259 

Luzzatti  banks,  11,  211-226,  258 

Machinery,  introduction  of,  12 
Management,  problem  of,  27 
Manchester,  Cooperative  Congress, 

14 
Manchester,  New  Hampshire,  236 
Manchestrian  economics,  53 
Massachusetts   credit   unions,   232, 

236-241 
Membership  of  societies : 

Inclusive  membership,  48 
Legal  membership,  106 
Qualified  membership,  50 
Residential  membership,  149 
Restricted  membership,  165 
Society  membership,  124-125 
Varied  membership,  51 
Middle  class  cooperative  stores: 
Breslau  cooperative  store,  138 
Capital,  138 

Competitive  troubles,  140-141 
Duration  of,  143 
Joint  purchasing,  139 
Socialistic   cooperative   stores, 

138,  139 
Universal  Federation,  245 
Mill,  John  Stuart,  243 
Minor  officials  and  committees,  206- 

210 
Miquel,  117,  119 
Modern  cooperative  banking,  17 
Monarchical  management,  27 
Municipal  borrowing  agencies,  18 
Municipal  savings  banks,  18 

Napoleon,  56 

National  Union,  1859,  70,  72,  73 

Nationalverein,  1859: 

See:  National  Union,  1859 
National  Workshops,  16 
New  Hampshire,  236,  239 
Nidhis,  232 

North  Carolina,  23g  et  seq. 
North  German  Confederation,   58, 


271] 


INDEX 


271 


Officers : 

See:  Board  of  officers 
Owen,  Robert,  12,  20,  242 

Panic  of  1873,  88,  93,  loi,  146 
Parliament  of  Handworkers,  1848, 

52,  54 
Partnership,  13,  254 
Peoples'  Bank  of  Liege,  170 
People's  banks : 

Compulsory  audit,  107 

Cooperative  centrals,  108 

Demand  of  Westphalian  Min- 
istry, 64 

Eilenburg  Society,  46-48 

Extent  of,  227-241 

Glackemeyer,  Dr.,  136 

Joint  stock  corporations,  1 10 

Lasalle's  antagonism,,  76-81 

Legal  membership,  106 

Limited  liability,  102-104 

Luzzati  banks,  211-226 

Panic  of  1873,  88 

Proudhon's  Plan,  16 

Prussian   Govt.  Central  Coop. 
Bank,  1 11- 112 

Reform,  91 

Schulze-Delitzsch,  41,  166-210 

Secretariat,  97 

Soergelbank,  145 

Statute  of  1889,  lOS 

Structure  of,  166-210 

Unlimited  contributory  liabil- 
ity, 105 
Personal  security,  174 
Philanthropic  institutions,  14 
Plenary  Committee,  Universal  Fed- 
eration : 

Duties,  160 

Membership,  160 

Purpose,  161 
Police  supervision  of  banks,  65 
Popular  government,  57 
Preussenkasse : 

Capital,  119 

Criiger,  Counsel,  122 

Management,  117 

Policy  since  1898,  122,  123 

Purpose,  119 

Results,  120  et  seq. 

State  investments  in,  ii8 

(Statute  of  1895,  117 

(Stock  of,  117 

Success  of,  119 


Summary,  12 
Probiviri,  217  et  seq. 
Progressive  Party,  57,  84,  94,  lOi 
Proletariat,  76 
Promissory  note,  174,  181 
Property,  22,  25 
Proudhon,    Pierre   Joseph,    15    ei 

seq.,  227 
Proxy,  vote  by,  192,  217,  250 
Prussian  Progressive  Party,  73  et 

seq. 
Purchasing    Society,    Cooperative, 

40,  43,  44,  59 

Raiffeisen,  F.  W.,  113 
Raiffeisen  banks,  90,  254,  258 
Raiffeisen  Movement,  90,  113,  244 

ei  seq. 
Railways,  effect  of,  51 
Rate  of  interest: 

See:  Interest,  rate  of 
Reactionary  Party,  36 
Reforms  of  Hardenberg,  18 
Reichstag,  90,  loi,  174 
Reserve    Bank    for    Cooperatives, 

Berlin,  86,  88 
Restriction  of  debt,  49 
Revolution,  Industrial,  1770-1830: 
See :     Industrial     Revolution, 
1 770- 1830 
Ristourne,  170,  222 
Rochdale  cooperative,   14  et  seq., 

23,  138 
Rodbertus,  38  et  seq. 
Rural  credits,  5,  16 
Russia,  231  et  seq. 

Savings  associations,  27 

Savings  and  loan  associations,  23, 

40,  45  et  seq.,  167 
Schenk,  Counsel,  95-112,  120,  134, 

137 
Schmoller,  196  et  seq. 
Schulze,  Hermann: 

See    Schulze  -  Delitzsch,    Her- 
mann 
Schulze-Delitzsch,   Hermann,  29- 

95,  135,  244 
Schulze-Delitzsch  banks,  42-55,  166 
et  seq.,  212,  255 
Cooperative  Purchasing  So- 
ciety, 43 
First  People's  Bank,  48-55 
Friendly  Society,  43 


2'J2 


INDEX 


[272 


Loan  Association,  1850,  45 

Operation  of,  166-179 

Shoemakers'  Coop.  Purch.  So- 
ciety, 44 

Structure  of,  180-210 
Schulze  -  Delitzsch  cooo.   societies, 

69,  84,  113,  166-210 
Schulze  -  Delitzsch   Movement,   11, 

56,  95,  113,  117,  152 
Secretariat,  1859,  69,  97,  98 
Security,  174,  176 
Self-government : 

See:  Democratic  management 
Self-help,  28,  45,  50,  66 
Seligman,  Professor  E.  R.  A.,  6,  14 
Seven  weeks'  war  with  Austria,  57, 

212 
Share  capital,  167  et  seq. 
Shoemaker's  Coop.  Purch.  Society, 

.44,.  46,  50 
Silesian  League  of   Coop.  Stores, 

138 
Sindaci,  218  et  seq. 
Smaller  Committee,  182 
Smaller  Committee,  Univer.  Fed- 
eration, 161-162 
Social  class,  Germany,  17,  18,  27 
Socialism,  16,  92,  136,  141 
Socialistic  Congress,  First,  14 
Socialistic  Cooperative  Stores : 

Composition,  138 

(Expulsion  of,  144 

Management,  138 

Policy,  139,  142 
Soergelbank,  80,  84,  S6,  88.  iii,  144 
Southern  Commercial  Congress,  5 
State  aid : 

Campaign  for,  1895,  115 

Head  Federation,  124-128 

Preussenkasse,  1 17-124 

Result  of,  129-133 
Statute  law,  evolution  of,   183   et 

seq. 
Stein,  reforms  of,  18 
Supervisors,  Board  of: 

See:  Board  of  Supervisors 
Surplus,  undistributable,  16 
Switzerland,  231 

Three-class  voting  system,  27 


Tiedtke,  27 
Treason  tribunals,  ^7 
Treaty  of  Prague,  1866,  82 
Truck  system,  2Z 
Tunis,  233 

Undistributable  surplus,  16 
United  States,  5,   107,  236  et  seq., 

261-263 
Universal  Federation: 

Counsel  of,  96,  159-165 

Counsel's  report,  1913,   150  et 
seq. 

Convention  of,  1882,  93 

Creation  of,  1864,  79 

Criiger,  Counsel,  134 

Disputes,  135  et  seq.,  14I-143 

Increase  in  membership,  iii 

Membership  of,  153 

People's  Banks  of,  175  et  seq. 

Purpose  of,  153 

Schenck,  Counsel,  loi 

Schulze-Delitzsch,  Counsel,  91 

Self-help,  120 

Structure  of,  97,  152,  154-159 

Unlimited  liability,  103 

Withdrawal  of  people's  banks, 
100 
Univ.  Federation  of  Self- Support- 
ing Coop.  Societies : 

See:  Universal  Federation 
Unlimited  contributory  liability,  105 
Unlimited  liability,  48,  Sy,   102  et 

seq.,  169,  215 
Uruguay,  233 

Varied  membership,  51 
Vienna,  Congress  of,  181 5,  56 
Voluntary  associations,  184  et  seq. 

Walker,  Francis  A.,  244 
Williaml  (1861),  57 
Wygodzinski,  W.,  196 

Zentralbank  fiir  Genossenschaften, 

86  et  seq. 
Zentralverband,  143 
Ziller,  100 
Zollverein,  German,  1S34,  57 


VITA 

Donald  Skeele  Tucker  was  born  December  17,  1884. 
He  attended  the  public  schools  of  Peoria,  111.  and  Seattle, 
Wash.  On  moving  to  England  he  entered  Dulwich  College, 
where  he  remained  from  1896  to  1900,  He  then  returned 
to  this  country  and  attended  the  high  school  in  Colorado 
Springs,  Colo.  He  attended  Colorado  College  from  1902 
to  1906  and  there  received  the  degree  of  A.  B.  in  1906. 
He  was  a  student  in  Williams  College  during  the  winter  of 
1911-12  and  received  from  that  institution  the  master's 
degree  in  191 2.  He  attended  Columbia  University  during 
the  years  1912-1913  and  191 3- 191 4.  During  the  summer 
of  191 3  he  also  attended  the  summer  term  of  Friedrichs 
Universitat  in  Halle-an-der-Saale.  From  191 4  to  191 6  he 
was  a  lecturer  in  Columbia  College.  In  1916  he  was  ap- 
pointed assistant-professor  of  economics  in  Wellesley  Col- 
lege and  in  1920  he  was  appointed  to  a  similar  position  in 
the  Massachusetts  Institute  of  Technology. 

273 


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